ECB’s economy-wide climate stress test

Spyros Alogoskoufis, Nepomuk Dunz, Tina Emambakhsh, Tristan Hennig, Michiel Kaijser, Charalampos Kouratzoglou, Manuel A. Muñoz, Laura Parisi and Carmelo Salleo

No 281, Occasional Paper Series from European Central Bank

Abstract: Climate change is one of the greatest challenges facing humankind this century. If left unchecked, it is likely to result in more frequent and severe climatic events, with the potential to cause substantial disruption to our economies, businesses and livelihoods in the coming decades. Yet the associated risks remain poorly understood, as climate shocks differ from the financial shocks observed during previous crises. This paper describes the ECB’s economy-wide climate stress test, which has been developed to assess the resilience of non-financial corporates (NFCs) and euro area banks to climate risks, under various assumptions in terms of future climate policies. This stress test comprises three main pillars: (i) climate-specific scenarios to project climate and macroeconomic conditions over the next 30 years; (ii) a comprehensive dataset that combines climate and financial information for millions of companies worldwide and approximately 1,600 consolidated euro area banks; (iii) a novel set of climate-specific models to capture the direct and indirect transmission channels of climate risk drivers for firms and banks. JEL Classification: C53, C55, G21, G38, Q54

Keywords: climate scenarios; climate stress-test; physical risk; transition risk (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-eec, nep-env, nep-fdg and nep-isf
Note: 1654951
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2021281

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