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Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies

Author

Listed:
  • Mr. Camilo E Tovar Mora
  • Mr. Yiqun Wu
  • Tianxiao Zheng

Abstract

We stress test the global economy to extreme climate change-related shocks on large and interconnected economies. Our analysis (i) identifies large and interconnected economies vulnerable to climate change-related shocks; (ii) estimates these economies’ external financing needs-at-risk due to these shocks, and (iii) quantifies the spillovers to the global economy using a global network model. We show that large and interconnected economies vulnerable to climate change could trigger a drain of $1.8 trillion in international reserves (2 percent of 2019’s global GDP). Domestic and multilateral macroeconomic policies can help reduce these global lossess to about $0.8 trillion. The scenario highlights the importance of considering global spillovers when assessing the impact of climate change-related shocks.

Suggested Citation

  • Mr. Camilo E Tovar Mora & Mr. Yiqun Wu & Tianxiao Zheng, 2022. "Stress Testing the Global Economy to Climate Change-Related Shocks in Large and Interconnected Economies," IMF Working Papers 2022/189, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/189
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