Natural disasters and financial stress: can macroprudential regulation tame green swans?

Pauline Avril, Grégory Levieuge and Camelia Romocea Turcu

Journal of International Money and Finance, 2025, vol. 154, issue C

Abstract: We empirically investigate the impact of natural disasters on the external finance premium (EFP), conditional on the rigorously implemented macroprudential regulation at the national level. Natural disaster intensity is measured using a unique set of geophysical indicators for a sample of 88 countries over the period 1996–2016. Using local projections, we show that the EFP rises significantly following storms when macroprudential regulation is lax, with this adverse financial impact increasing over time. By contrast, a strictly enforced macroprudential framework, especially one based on bank-oriented instruments, enhances systemic resilience and prevents financing conditions from tightening nationwide; in some cases, the EFP may even decline, particularly in middle-income countries and in response to extreme events. Finally, macroprudential stringency appears less critical in the case of floods, as their predictability may generally foster self-discipline.

Keywords: Financial stress; External finance premium; Macroprudential policy; Natural disasters; Local projections (search for similar items in EconPapers)
JEL-codes: C23 E43 E5 Q54 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Natural disasters and financial stress: can macroprudential regulation tame green swans? (2025)
Working Paper: Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans? (2022)
Working Paper: Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans? (2021)
Working Paper: Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:154:y:2025:i:c:s0261560625000609

DOI: 10.1016/j.jimonfin.2025.103325

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