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Beirne, John, Renzhi, Nuobu and Volz, Ulrich (2020) Feeling the Heat: Climate Risks and the Cost of Sovereign Borrowing. ADBI Working Paper No. 1160. Tokyo: Asian Development Bank Institute.

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This paper empirically examines the link between the cost of sovereign borrowing and climate risk for 40 advanced and emerging economies. Controlling for a large set of domestic and global factors, the paper shows that both vulnerability and resilience to climate risk are important factors driving the cost of sovereign borrowing at the global level. Overall, we find that vulnerability to the direct effects of climate change matter substantially more than climate risk resilience in terms of the implications for sovereign borrowing costs. Moreover, the magnitude of the effect on bond yields is progressively higher for countries deemed highly vulnerable to climate change. Impulse response analysis from a set of panel structural VAR models indicates that the reaction of bond yields to shocks imposed on climate vulnerability and resilience become permanent after around 12 quarters, with high risk economies experiencing larger permanent effects on yields than other country groups.

Item Type: Monographs and Working Papers (Working Paper)
Keywords: climate risk, cost of sovereign borrowing
SOAS Departments & Centres: Departments and Subunits > Department of Economics
Copyright Statement: © 2020 Asian Development Bank Institute
Date Deposited: 06 Oct 2020 09:37
Funders: Other

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