Asymmetric Sovereign Risk: Implications for Climate Change Preparation

Jose Gomez-Gonzalez, Jorge Uribe and Oscar Valencia ()

No 202401, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: Sovereign risk exhibits significantly asymmetric reactions to its determinants across the conditional distribution of credit spreads. This aspect, previously overlooked in the literature, carries relevant policy implications. Countries with elevated risk levels are disproportionately affected by climate change vulnerability compared to their lower-risk counterparts, especially in the short term. Factors such as inflation, natural resource rents, and the debt-to-GDP ratio exert different effects between low and high-risk spreads as well. Real growth and terms of trade have a stable but modest impact across the spread distribution. Notably, investing in climate change preparedness proves effective in mitigating vulnerability to climate change, in terms of sovereign risk, particularly for countries with low spreads and long-term debt (advanced economies), where readiness and vulnerability tend to counterbalance each other. However, for countries with high spreads and short-term debt, additional measures are essential as climate change readiness alone is insufficient to offset vulnerability effects in this case. Results also demonstrate that the actual occurrence of natural disasters is less influential than vulnerability to climate change in determining spreads.

Keywords: Sovereign risk; Credit risk; Panel-quantile regressions; Nonlinear dynamics; Vulnerability; Preparedness; Disaster risk. JEL classification: F34, G15, H63, Q51, Q54. (search for similar items in EconPapers)
Pages: 50 pages
Date: 2024-01, Revised 2024-01
New Economics Papers: this item is included in nep-agr, nep-env, nep-eur and nep-fdg
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Related works:
Journal Article: Asymmetric sovereign risk: Implications for climate change preparation (2025)
Working Paper: Asymmetric Sovereign Risk: Implications for Climate Change Preparation (2024)
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