Q54 - Climate; Natural Disasters; Global Warming

• Let’s Get Physical: Impacts of Climate Change Physical Risks on Provincial Employment

  Staff Working Paper 2024-32 Thibaut Duprey, Soojin Jo, Geneviève Vallée

  We analyze 40 years’ worth of natural disasters using a local projection framework to assess their impact on provincial labour markets in Canada. We find that disasters decrease hours worked within a week and lower wage growth in the medium run. Our study highlights that disasters affect vulnerable workers through the income channel.

  Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Labour markets, Regional economic developments JEL Code(s): C, C3, C33, E, E2, E24, J, J3, Q, Q5, Q54

• Total factor productivity growth projection for Canada: A sectoral approach

  Staff Analytical Note 2024-12 Dany Brouillette, Tessa Devakos, Raven Wheesk

  We propose a tool that decomposes TFP growth into sectoral contributions. The analysis incorporates three structural factors—digitalization, aging and climate change policies—and measures their contributions. Overall, we expect that aggregate TFP growth will slow down in the 2020s below both its historical average and the average from the 2010s.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Climate change, Digitalization, Labour markets, Productivity JEL Code(s): D, D2, D24, J, J1, J11, O, O3, O33, Q, Q5, Q54
• January 15, 2024

  Mapping out the implications of climate transition risk for the financial system

  Gabriel Bruneau, Javier Ojea Ferreiro, Andrew Plummer, Marie-Christine Tremblay, Aidan Witts

  We develop a new analytical framework to understand the system-wide implications of climate transition risk. When applying this framework to Canadian data, we find that interconnections within the financial sector could amplify the direct effects of climate transition risk on financial entities.

  Content Type(s): Publications, Financial System Hub articles Topic(s): Climate change, Economic models, Financial institutions, Financial markets, Financial stability JEL Code(s): C, C6, C63, G, G0, G01, G1, G10, G2, G20, Q, Q5, Q54
• January 15, 2024

  Flood risk and residential lending

  Craig Johnston, Geneviève Vallée, Hossein Hosseini Jebeli, Miguel Molico, Marie-Christine Tremblay, Aidan Witts

  We present key findings of a recent study that evaluates the credit risk that flooding poses to the residential lending activities of Canadian banks and credit unions. Results show that such risk currently appears modest but could become larger with climate change.

  Content Type(s): Publications, Financial System Hub articles Topic(s): Central bank research, Climate change, Credit risk management, Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C8, C81, G, G2, G21, Q, Q5, Q54

• Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans

  Staff Working Paper 2024-1 Shihan Xie, Victoria Wenxin Xie, Xu Zhang

  This paper explores the impact of extreme weather exposures on the financial outcomes of low-income households. Our findings highlight the heightened financial vulnerability of low-income households to environmental shocks and underscore the need for targeted policies.

  Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Credit and credit aggregates JEL Code(s): G, G5, Q, Q5, Q54

• Climate-Related Flood Risk to Residential Lending Portfolios in Canada

  Staff Discussion Paper 2023-33 Craig Johnston, Geneviève Vallée, Hossein Hosseini Jebeli, Brett Lindsay, Miguel Molico, Marie-Christine Tremblay, Aidan Witts

  We assess the potential financial risks of current and projected flooding caused by extreme weather events in Canada. We focus on the residential real estate secured lending (RESL) portfolios of Canadian financial institutions (FIs) because RESL portfolios are an important component of FIs’ balance sheets and because the assets used to secure such loans are immobile and susceptible to climate-related extreme weather events.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Climate change, Credit risk management, Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C8, C81, G, G2, G21, Q, Q5, Q54

• Understanding the Systemic Implications of Climate Transition Risk: Applying a Framework Using Canadian Financial System Data

  Staff Discussion Paper 2023-32 Gabriel Bruneau, Javier Ojea Ferreiro, Andrew Plummer, Marie-Christine Tremblay, Aidan Witts

  Our study aims to gain insight on financial stability and climate transition risk. We develop a methodological framework that captures the direct effects of a stressful climate transition shock as well as the indirect—or systemic—implications of these direct effects. We apply this framework using data from the Canadian financial system.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Climate change, Economic models, Financial institutions, Financial markets, Financial stability JEL Code(s): C, C6, C63, G, G0, G01, G1, G10, G2, G20, Q, Q5, Q54

• Supporting the Transition to Net-Zero Emissions: The Evolving Role of Central Banks

  Staff Discussion Paper 2023-31 Karen McGuinness

  While climate change was largely tackled by government policies in the past, central banks are increasingly grappling with the risks climate change poses. They are evaluating their operational policies to reflect these risks and the transition to a net-zero economy. This paper explores the trade-offs and considerations central banks face.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Climate change, Financial markets JEL Code(s): D, D5, D53, E, E5, E58, E6, E63, G, G3, G32, Q, Q5, Q54

• Is Climate Transition Risk Priced into Corporate Credit Risk? Evidence from Credit Default Swaps

  Staff Working Paper 2023-38 Andrea Ugolini, Juan C. Reboredo, Javier Ojea Ferreiro

  We study whether the credit derivatives of firms reflect the risk from climate transition. We find that climate transition risk has asymmetric and significant economic impacts on the credit risk of more vulnerable firms, and negligible effects on other firms.

  Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Credit risk management, Econometric and statistical methods JEL Code(s): C, C2, C24, G, G1, G12, G3, G32, Q, Q5, Q54

• Cost Pass-Through with Capacity Constraints and International Linkages

  Staff Working Paper 2023-16 Reinhard Ellwanger, Hinnerk Gnutzmann, Piotr Śpiewanowski

  How are regional cost shocks passed through into global prices? We investigate the role of short-run capacity constraints and show that they can induce stark non-linearities in the pass-through. We highlight this effect for the market for ammonia, a commodity produced largely from natural gas.

  Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Econometric and statistical methods, Inflation and prices, International topics JEL Code(s): L, L1, L13, L6, L65, Q, Q4, Q40, Q5, Q54