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Effects of Climate Risks on Financial Stress: Evidence from Asia-Pacific Countries

Sarah Nandnaba (), Rangan Gupta and Samrat Goswami ()
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Sarah Nandnaba: Department of Economics, Ecole normale superieure (ENS) Paris-Saclay, 91190 Gif-sur-Yvette, France
Samrat Goswami: Department of Rural Studies, Tripura University, Agartala 799022, Tripura, India

No 202433, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the impact of climate physical risk, using changes in temperature anomalies and its volatility, on financial stress indicators in Asia-Pacific markets. Relying on Jorda (2005) local projection model and monthly data from 1995:01 to 2023:08, the study captures the dynamic responses of the Financial Stress Index (FSI) and its components to climate shocks. The findings reveal that there is a delayed positive impact from climate risk shocks, especially from the second moment. Going further, we study the effect of these physical risks shocks on the components of the FSI to show strong increase in debt spreads, exchange market pressure, and equity markets volatility. These results underscore the importance of integrating climate risk assessments into financial stability monitoring and stress testing frameworks.

Keywords: Climate Risks; Financial Stress; Asia-Pacific Countries (search for similar items in EconPapers)
JEL-codes: C23 G15 Q54 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2024-08
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202433

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