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Natural disasters and financial stress: can macroprudential regulation tame green swans?

Author

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  • Avril, Pauline
  • Levieuge, Grégory
  • Turcu, Camelia

Abstract

We empirically investigate the impact of natural disasters on the external finance premium (EFP), conditional on the rigorously implemented macroprudential regulation at the national level. Natural disaster intensity is measured using a unique set of geophysical indicators for a sample of 88 countries over the period 1996–2016. Using local projections, we show that the EFP rises significantly following storms when macroprudential regulation is lax, with this adverse financial impact increasing over time. By contrast, a strictly enforced macroprudential framework, especially one based on bank-oriented instruments, enhances systemic resilience and prevents financing conditions from tightening nationwide; in some cases, the EFP may even decline, particularly in middle-income countries and in response to extreme events. Finally, macroprudential stringency appears less critical in the case of floods, as their predictability may generally foster self-discipline.

Suggested Citation

  • Avril, Pauline & Levieuge, Grégory & Turcu, Camelia, 2025. "Natural disasters and financial stress: can macroprudential regulation tame green swans?," Journal of International Money and Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jimfin:v:154:y:2025:i:c:s0261560625000609
    DOI: 10.1016/j.jimonfin.2025.103325
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    More about this item

    Keywords

    Financial stress; External finance premium; Macroprudential policy; Natural disasters; Local projections;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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