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

Beirne, John / Nuobu Renzhi / Ulrich Volz
External Publications (2021)

in: International Review of Economics & Finance (76), 920-936

DOI: https://doi.org/10.1016/j.iref.2021.06.019
Information

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.

About the author

Volz, Ulrich

Economist