Let’s talk about the weather: the impact of climate change on central banks
Rhiannon Sowerbutts and
No 603, Bank of England working papers from Bank of England
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
New Economics Papers: this item is included in nep-ene, nep-env, nep-ias, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0603
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