Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies
IMF Working Papers, September 16, 2022
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- Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies
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Bibliographic details
- Authors: Camilo E Tovar Mora, Yiqun Wu, Tianxiao Zheng
- Published: September 16, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400219641.001
Overview
- Purpose: Stress test the global economy to extreme climate change-related shocks on large and interconnected economies.
- Analytical steps:
- Identify large and interconnected economies vulnerable to climate change-related shocks.
- Estimate these economies’ external financing needs-at-risk due to these shocks.
- Quantify the spillovers to the global economy using a global network model.
Key findings
- Large and interconnected economies vulnerable to climate change could trigger a drain of $1.8 trillion in international reserves.
- The $1.8 trillion drain represents 2 percent of 2019’s global GDP.
- Domestic and multilateral macroeconomic policies can reduce these global losses to about $0.8 trillion.
- The scenario underscores the importance of considering global spillovers when assessing the impact of climate change-related shocks.
Methodology and analytical focus
- Vulnerability identification of large and interconnected economies to climate change-related shocks.
- Estimation of external financing needs-at-risk for these economies.
- Quantification of spillovers through a global network model.
Policy implications and recommendations
- Domestic macroeconomic policies can mitigate large reserve outflows resulting from climate change-related shocks.
- Multilateral macroeconomic policy coordination can further reduce global losses.
- Assessments of climate-related shocks should incorporate global spillovers to capture systemic implications.
Keywords and subjects emphasized
- Subjects: Climate change, Climate policy, Environment, Financial sector policy and analysis, Natural disasters, Stress testing.
- Keywords: CDS spread, Climate change, climate change risk, climate change vulnerability, Climate policy, climate vulnerability, external financing-needs-at-risk, Global, multilayered networks, Natural disasters, Stress testing, vulnerability to climate change.
Camilo E Tovar Mora, Yiqun Wu, and Tianxiao Zheng, September 16, 2022.
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- Working Paper