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The rising tide lifts some interest rates: climate change, natural disasters, and loan pricing

Ricardo Correa, Ai He (), Christoph Herpfer () and Ugur Lel
Additional contact information
Ai He: https://sc.edu/study/colleges_schools/moore/directory/he_ai.php
Christoph Herpfer: https://goizueta.emory.edu/faculty/profiles/christoph-herpfer

No 1345, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We investigate how corporate loan costs are affected by climate change-related natural disasters. We construct granular measures of borrowers’ exposure to natural disasters and then disentangle the direct effects of disasters from the effects of lenders updating their beliefs about the impact of future disasters. Following a climate change-related disaster, spreads on loans of at-risk, yet unaffected borrowers, spike and are amplified when attention to climate change is high. Weaker borrowers with the most extreme exposure to these disasters suffer the highest increase in spreads. Importantly, there is no such effect from disasters that are not aggravated by climate change.

Keywords: Banks; Climate change; Loan pricing; Natural disasters (search for similar items in EconPapers)
JEL-codes: G21 Q51 Q54 (search for similar items in EconPapers)
Pages: 56 p.
Date: 2022-06-02
New Economics Papers: this item is included in nep-env and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1345

DOI: 10.17016/IFDP.2022.1345

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