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Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?

Author

Listed:
  • Pauline Avril
  • Grégory Levieuge
  • Camelia Turcu

Abstract

We empirically investigate the impact of natural disasters on the external finance premium (EFP), conditional on the stringency of macroprudential regulation. The intensity of natural disasters is measured through an original set of geophysical indicators for a sample of 88 countries over the period 1996-2016. Using local projections, we show that, following storms, the EFP significantly rises (drops) when macroprudential regulation is lax (stringent). This suggests that regulated financial systems could foster favorable financing conditions to replace destroyed capital with more productive capital. Macroprudential stringency seems less crucial in the case of floods, which are more predictable and thus may prompt self-discipline.

Suggested Citation

  • Pauline Avril & Grégory Levieuge & Camelia Turcu, 2022. "Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?," Working papers 874, Banque de France.
    • Handle: RePEc:bfr:banfra:874
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    Cited by:

    1. Nabil Daher, 2024. "Is growth at risk from natural disasters? Evidence from quantile local projections," Working Papers 2024.8, International Network for Economic Research - INFER.
    2. Jude, Cristina & Levieuge, Grégory, 2025. "Doubling down: The synergy of CCyB release and monetary policy easing," Journal of International Money and Finance, Elsevier, vol. 155(C).
    3. Nistor, Simona & Fărcaș, Ioana Georgiana, 2025. "Does national culture affect macroprudential policy? An international investigation of regulatory behavior on macroprudential interventions," Journal of Behavioral and Experimental Finance, Elsevier, vol. 45(C).
    4. Bodenstein, Martin & Scaramucci, Mikaël, 2025. "On the GDP effects of severe physical hazards," European Economic Review, Elsevier, vol. 175(C).
    5. Fabrizio Ferriani & Andrea Gazzani & Filippo Natoli, 2023. "Flight to climatic safety: local natural disasters and global portfolio flows," Temi di discussione (Economic working papers) 1420, Bank of Italy, Economic Research and International Relations Area.
    6. Nabil Daher, 2024. "Is growth at risk from natural disasters? Evidence from quantile local projections," French Stata Users' Group Meetings 2024 12, Stata Users Group.
    7. Nabil Daher, 2025. "Is growth at risk from natural disasters ? Evidence from quantile local projections," EconomiX Working Papers 2025-9, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

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    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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