Local weather and financial coverage sequence – Financial institution Underground

Boromeus Wanengkirtyo, Francesca Diluiso, Rebecca Mari, Jenny Chan, Ambrogio Cesa-Bianchi and Alex Haberis.

Local weather change is turning into more and more essential for financial coverage because the world transitions into greener economies and local weather change’s bodily impacts develop into extra distinguished. That is complementary, however distinct to, inspecting how local weather change impacts monetary stability dangers (Carney (2015)). This sequence of posts highlights how local weather change can have an effect on key financial variables reminiscent of output and inflation, and thereby the conduct of financial coverage. Local weather change and local weather insurance policies signify one other set of financial shocks and structural adjustments to observe, in order that financial coverage can meet its aims.

Local weather change additionally presents some distinct challenges for financial coverage. These embody its heterogeneous influence throughout international locations, the unpredictability of bodily dangers, in addition to the uncertainties concerning the implementation of local weather coverage, its results, and the way financial brokers will reply to them. Reflecting this, the current literature on local weather change and financial coverage has grown quickly. This sequence goals to contribute to the controversy with a number of approaches: using a theoretical enterprise cycle mannequin to evaluate how totally different local weather insurance policies form the response to ‘typical’ macroeconomic shocks, inspecting the financial results of local weather insurance policies throughout international locations utilizing high-frequency local weather coverage shocks, and mixing granular geospatial and firm-level knowledge.

The first post of this sequence focuses on some key facets of local weather mitigation insurance policies that would matter for the conduct of financial coverage. The second post highlights cross-country variations: whereas impacts from present local weather insurance policies could seem minor, their results are heterogeneous throughout international locations and companies. The third post and fourth post look at the bodily impacts of local weather change, with a concentrate on flooding, a key bodily danger of local weather change within the UK. The financial influence of flooding is analysed at each the agency and mixture stage, along with how sorting and adaptation funding form companies’ publicity to flood dangers.

Boromeus Wanengkirtyo, Francesca Diluiso and Rebecca Mari work within the Financial institution’s Structural Economics Division. Jenny Chan works within the Financial institution’s Exterior MPC Unit. Ambrogio Cesa-Bianchi and Alex Haberis work within the Financial institution’s World Evaluation Division.

If you wish to get in contact, please electronic mail us at bankunderground@bankofengland.co.uk or go away a remark under.

Comments will solely seem as soon as accredited by a moderator, and are solely printed the place a full identify is provided. Financial institution Underground is a weblog for Financial institution of England workers to share views that problem – or assist – prevailing coverage orthodoxies. The views expressed listed below are these of the authors, and are usually not essentially these of the Financial institution of England, or its coverage committees.