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

Author

Listed:
  • Sarah Nandnaba

    (Department of Economics, Ecole normale superieure (ENS) Paris-Saclay, 91190 Gif-sur-Yvette, France)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Samrat Goswami

    (Department of Rural Studies, Tripura University, Agartala 799022, Tripura, India)

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.

Suggested Citation

  • Sarah Nandnaba & Rangan Gupta & Samrat Goswami, 2024. "Effects of Climate Risks on Financial Stress: Evidence from Asia-Pacific Countries," Working Papers 202433, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202433
    as

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    More about this item

    Keywords

    Climate Risks; Financial Stress; Asia-Pacific Countries;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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