Pricing Climate Risks: Evidence from Wildfires and Municipal Bonds

Woongchan Jeon, Lint Barrage and Kieran James Walsh

No 11447, CESifo Working Paper Series from CESifo

Abstract: How are financial markets responding to anticipated climate-driven wildfire risk increases? Combining high-resolution meteorological predictions and land use pattern maps with detailed US municipal bond data, this paper finds that municipalities facing higher future wildfire risk increases are already having to pay substantially higher borrowing costs as a result. A one standard deviation increase in future wildfire exposure is associated with a 23-basis point rise in school district bond spreads, corresponding to 42% of the sample mean. Borrowing cost impacts are significantly larger in areas with higher minority population shares and heavier reliance on local revenue sources.

Keywords: wildfires; climate risk; municipal bond; fiscal costs of climate change (search for similar items in EconPapers)
JEL-codes: G12 H74 Q54 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-agr, nep-env and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11447

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