This Changes Everything: Climate Shocks and Sovereign Bonds

June 5, 2020

Preview Citation

Format: Chicago

Serhan Cevik, and João Tovar Jalles. This Changes Everything: Climate Shocks and Sovereign Bonds, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Climate change is already a systemic risk to the global economy. While there is a large body of literature documenting potential economic consequences, there is scarce research on the link between climate change and sovereign risk. This paper therefore investigates the impact of climate change vulnerability and resilience on sovereign bond yields and spreads in 98 advanced and developing countries over the period 1995–2017. We find that the vulnerability and resilience to climate change have a significant impact on the cost government borrowing, after controlling for conventional determinants of sovereign risk. That is, countries that are more resilient to climate change have lower bond yields and spreads relative to countries with greater vulnerability to risks associated with climate change. Furthermore, partitioning the sample into country groups reveals that the magnitude and statistical significance of these effects are much greater in developing countries with weaker capacity to adapt to and mitigate the consequences of climate change.

Subject: Bond yields, Climate change, Environment, Financial institutions, Financial services, Public debt, Sovereign bonds, Yield curve

Keywords: Bond yield, Bond yields, Climate change, Estimation methodology, Global, GMM estimation, Government bond bond yield, Government bond yield, Government bond yields, Resilience, South Asia, Sovereign bonds, Spreads, System GMM approach, System GMM estimator, System GMM identification assumption, Vulnerability, WP, Yield curve

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/079
Stock No:

WPIEA2020079
ISBN:

9781513546216
ISSN:

1018-5941

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