Systemic Financial Risks of Climate Shocks: Empirical Evidence from Major Free-Floating Currencies

Ilias Chiboub and Hicham Sadok ()
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Hicham Sadok: University Mohammed V, Rabat, Morocco

Working Papers from HAL

Abstract: Using the Cumulative Average Abnormal Returns (CAAR) approach, we evaluate market reactions of major free-floating currencies (USD, JPY, EUR, GBP, CAD, CHF) to climate disasters. We further apply a Vector Autoregressive (VAR) model with impulse response functions and stress-testing to examine dynamic and persistent weather shocks. VAR-IRF and stress-tests results show temperature shocks affect EUR/USD and GBP/USD, causing sharp depreciations, while USD/JPY, USD/CAD, and USD/CHF are impacted via financial contagion. CAAR results suggest that emotionally charged disasters significantly weaken exchange rates, despite not being the most physically damaging. These findings distinguish immediate market volatility from dynamic responses to climate shocks.

Date: 2026-08-30
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05731533

DOI: 10.2139/ssrn.6730843

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