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

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...

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Bibliographic Details
Published in:International review of economics & finance 2021-11, Vol.76, p.920-936
Main Authors: Beirne, John, Renzhi, Nuobu, Volz, Ulrich
Format: Article
Language:English
Subjects:
Climate risk
Cost of sovereign borrowing
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Summary: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.
ISSN:1059-0560
1873-8036
DOI:10.1016/j.iref.2021.06.019