Let’s talk about the weather: the impact of climate change on central banks

Sandra Batten, Rhiannon Sowerbutts and Misa Tanaka

No 603, Bank of England working papers from Bank of England

Abstract: This paper examines the channels via which climate change and policies to mitigate it could affect a central bank’s ability to meet its monetary and financial stability objectives. We argue that two types of risks are particularly relevant for central banks. First, a weather-related natural disaster could trigger financial and macroeconomic instability if it severely damages the balance sheets of households, corporates, banks, and insurers (physical risks). Second, a sudden, unexpected tightening of carbon emission policies could lead to a disorderly re-pricing of carbon-intensive assets and a negative supply shock (transition risks). Climate-related disclosure could facilitate an orderly transition to a low-carbon economy if it helps a wide range of investors better assess their financial risk exposures.

Keywords: Climate change; natural disasters; financial stability; monetary policy (search for similar items in EconPapers)
JEL-codes: E58 G21 G22 Q43 Q54 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-05-20
New Economics Papers: this item is included in nep-ene, nep-env, nep-ias, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (113)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0603

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