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Feeling the heat: Climate risks and the cost of sovereign borrowing
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Feeling the heat: Climate risks and the cost of sovereign borrowing

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  • Beirne, John
  • Renzhi, Nuobu
  • Volz, Ulrich

Abstract

This paper empirically examines the link between the cost of sovereign borrowing and climate risk for 40 advanced and emerging economies. We find that vulnerability to the direct effects of climate change matters substantially more for sovereign borrowing costs than climate risk resilience. Moreover, the magnitude of the effect on bond yields is progressively higher for countries deemed highly vulnerable to climate change. Finally, a set of panel structural VAR models indicate that the reaction of bond yields to climate risk shocks become permanent after around 18 quarters, with high risk economies experiencing the largest permanent effects on yields.

Suggested Citation

  • Beirne, John & Renzhi, Nuobu & Volz, Ulrich, 2021. "Feeling the heat: Climate risks and the cost of sovereign borrowing," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 920-936.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:920-936
    DOI: 10.1016/j.iref.2021.06.019
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    More about this item

    Keywords

    Climate risk; Cost of sovereign borrowing;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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