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

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Listed:
  • Pauline Avril

    (Université d'Orléans)

  • Gregory Levieuge

    (Banque de France, Université d'Orléans)

  • Camelia Turcu

    (Université d'Orléans)

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 drops (rises) when macroprudential regulation is stringent (lax). 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, the predictability of which may prompt self-discipline.

Suggested Citation

  • Pauline Avril & Gregory Levieuge & Camelia Turcu, 2021. "Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?," Working Papers 2021.13, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2021.13
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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:

    • E - Macroeconomics and Monetary Economics

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