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Let’s talk about the weather: the impact of climate change on central banks

Author

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  • Batten,, Sandra

    () (Bank of England)

  • Sowerbutts, Rhiannon

    () (Bank of England)

  • Tanaka, Misa

    () (Bank of England)

Abstract

This paper examines the channels via which climate change and policies to mitigate it could affect a central bank’s ability to meet its monetary and financial stability objectives. We argue that two types of risks are particularly relevant for central banks. First, a weather-related natural disaster could trigger financial and macroeconomic instability if it severely damages the balance sheets of households, corporates, banks, and insurers (physical risks). Second, a sudden, unexpected tightening of carbon emission policies could lead to a disorderly re-pricing of carbon-intensive assets and a negative supply shock (transition risks). Climate-related disclosure could facilitate an orderly transition to a low-carbon economy if it helps a wide range of investors better assess their financial risk exposures.

Suggested Citation

  • Batten,, Sandra & Sowerbutts, Rhiannon & Tanaka, Misa, 2016. "Let’s talk about the weather: the impact of climate change on central banks," Bank of England working papers 603, Bank of England.
  • Handle: RePEc:boe:boeewp:0603
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2016/lets-talk-about-the-weather-the-impact-of-climate-change-on-central-banks.pdf?la=en&hash=C49212AE5F68EC6F9E5AA71AC404B72CDC4D7574
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Asjad Naqvi & Engelbert Stockhammer, 2017. "Directed technological change in a post-Keynesian ecological macromodel," Working Papers PKWP1714, Post Keynesian Economics Society (PKES).
    2. Dafermos, Yannis & Nikolaidi, Maria & Galanis, Giorgos, 2017. "Climate change, financial stability and monetary policy," Greenwich Papers in Political Economy 17633, University of Greenwich, Greenwich Political Economy Research Centre.
    3. repec:spr:climat:v:143:y:2017:i:1:d:10.1007_s10584-017-1985-1 is not listed on IDEAS
    4. repec:pal:compes:v:60:y:2018:i:1:d:10.1057_s41294-018-0055-7 is not listed on IDEAS
    5. repec:eee:ecolec:v:144:y:2018:i:c:p:228-243 is not listed on IDEAS
    6. repec:spr:climat:v:145:y:2017:i:3:d:10.1007_s10584-017-2095-9 is not listed on IDEAS
    7. Mukanjari, Samson & Sterner, Thomas, 2018. "Do Markets Trump Politics? Evidence from Fossil Market Reactions to the Paris Agreement and the U.S. Election," Working Papers in Economics 728, University of Gothenburg, Department of Economics.

    More about this item

    Keywords

    Climate change; natural disasters; financial stability; monetary policy;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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