Skip navigation

Climate change, financial stability and monetary policy

Climate change, financial stability and monetary policy

Dafermos, Yannis, Nikolaidi, Maria and Galanis, Giorgos (2018) Climate change, financial stability and monetary policy. Ecological Economics, 152. pp. 219-234. ISSN 0921-8009 (Print), 1873-6106 (Online) (doi:https://doi.org/10.1016/j.ecolecon.2018.05.011)

[img]
Preview
PDF (Author Accepted Manuscript)
19966 NIKOLAIDI_Climate_Change_Financial_Stability_and_Monetary_Policy_2018.pdf - Accepted Version

Download (1MB) | Preview
[img] PDF (Acceptance Email)
19966 NIKOLAIDI_Acceptance_Email_2018.pdf - Additional Metadata
Restricted to Repository staff only

Download (183kB)

Abstract

Using a stock-flow-fund ecological macroeconomic model, we analyse (i) the effects of climate change on financial stability and (ii) the financial and global warming implications of a green quantitative easing (QE) programme. Emphasis is placed on the impact of climate change damages on the price of financial assets and the financial position of firms and banks. The model is estimated and calibrated using global data and simulations are conducted for the period 2016-2120. Four key results arise. First, by destroying the capital of firms and reducing their profitability, climate change is likely to gradually deteriorate the liquidity of firms, leading to a higher rate of default that could harm both the financial and the non-financial corporate sector. Second, climate change damages can lead to a portfolio reallocation that can cause a gradual decline in the price of corporate bonds. Third, climate-induced financial instability might adversely affect credit expansion, exacerbating the negative impact of climate change on economic activity. Fourth, the implementation of a green corporate QE programme can reduce climate-induced financial instability and restrict global warming. The effectiveness of this programme depends positively on the responsiveness of green investment to changes in bond yields.

Item Type: Article
Uncontrolled Keywords: ecological macroeconomics, stock-flow consistent modelling, climate change, financial stability, green quantitative easing
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified: 21 Jun 2019 01:38
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: GREAT d
Selected for GREAT 2019: GREAT 2
URI: http://gala.gre.ac.uk/id/eprint/19966

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics