IDEAS home Printed from https://ideas.repec.org/a/pcp/pucrev/y2024i93p57-88.html
   My bibliography  Save this article

Climate Risk Stress Test: Impact of Climate Change on the Peruvian Financial System

Author

Listed:
  • Daniel Romero

    (Research Department of the SBS)

  • Juan Carlos Salinas

    (Research Department of the SBS)

  • Jacqueline Talledo

    (Research Department of the SBS)

Abstract

We develop the first climate risk Stress Test for the Peruvian financial system following a top-down approach. Focusing on the microeconomic channel, we evaluate how heavy rainfall and droughts, under a scenario of pure physical risk, will marginally affect the probability of default(PD) of borrowers by 2050. Using information from the Credit Registry, the National Oceanic andAtmospheric Administration (NOAA), and CMIP6 precipitation projections (37 modeling groups),we calibrate the marginal impacts differentiating by economic sector and geographical location.We find that, on average, by December 2050, the probability of default of the Peruvian financial system would increase by 4.9% with respect to December 2020. By geographic area, borrowers located on the northern coast (Piura, Lambayeque) and the southern highlands (Ayacucho, Cusco)would be negatively affected by heavy rainfall, while the rainforest (Madre de Dios, Ucayali) would be negatively affected by droughts. Moreover, the economic sectors affected by heavy rainfall or droughts would be agriculture, commerce, and transportation & communications.

Suggested Citation

  • Daniel Romero & Juan Carlos Salinas & Jacqueline Talledo, 2024. "Climate Risk Stress Test: Impact of Climate Change on the Peruvian Financial System," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 47(93), pages 57-88.
    • Handle: RePEc:pcp:pucrev:y:2024:i:93:p:57-88
    as

    Download full text from publisher

    File URL: https://revistas.pucp.edu.pe/index.php/economia/article/view/28990/26498
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Climate risk; stress testing; CMIP6; IPCC; heavy rainfall; floods; droughts; credit risk; probability of default; NGFS;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pcp:pucrev:y:2024:i:93:p:57-88. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/depucpe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.