Summary of All Sessions |
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Click here for an index of all participants |
35 sessions, 94 papers, and 0 presentations with no associated papers |
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The Third International Conference on the Climate-Macro-Finance Interface (3CMFI): |
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Detailed List of Sessions |
| Session 1: REGISTRATION AND COFFEE March 23, 2026 8:45 to 9:55 Location: House of Finance Foyer – Ground Floor |
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| Session 2: WELCOME - F. Heider (SAFE & Goethe University of Frankfurt), C. Meinerding (Bundesbank), C. Morana (University of Milano-Bicocca & RCEA-EUROPE), C. Willeke (European Central Bank) March 23, 2026 9:55 to 10:10 Location: HZ 4 |
| Session 3: KEYNOTE 1: Balancing Growth, Stability, and Sustainability in a World of Rising Challenges — Sabine Mauderer (Bundesbank), Chair: Caroline Willeke (European Central Bank) March 23, 2026 10:10 to 11:00 Location: HZ 4 |
| Session 4: BUNDESBANK SPECIAL SESSION - UNCOVERING THE BLIND SPOTS: NAVIGATING CLIMATE UNCERTAINTY - Sandra Eickmeier, Matthias Kaldorf, Christoph Meinerding (Bundesbank) - Chair: Christoph Meinerding (Bundesbank) March 23, 2026 11:00 to 12:00 Location: HZ 4 |
| Session 5: LUNCH March 23, 2026 12:00 to 13:30 Location: House of Finance Foyer – Ground Floor |
| Session 6: CLIMATE AND FINANCIAL MARKETS March 23, 2026 13:30 to 15:30 Location: HoF E.22 (Commerzbank) |
Sustainability Regulation Index and Its Impact on Global Equity ReturnsAbstractThis study examines the drivers of short- and long-term sustainable equity returns, with a focus on sustainability regulation and control of environmental, economic and market factors. The analysis covers 32 developed and emerging markets over a period of ten years. The analysis incorporates key events such as the recent monetary policy shifts and the pandemic, and spans global, regional and country levels. In order to evaluate the effect of sustainability regulations, a quantitative Sustainability Regulation Index (SRI) is developed at the country level, based on four key dimensions. A separate index is constructed for EU sustainability mandates. The global SRI begins around 2008 and follows three main phases. The country-level SRI has a positive and immediate impact on sustainable stock returns, an effect that persists even with one-year lags. Conversely, the EU SRI has a negative impact that persists over time. Developed economies are impacted more severely and for a longer period than emerging markets. Climate-related variables have a persistent negative impact. Macroeconomic factors such as GDP growth, inflation and monetary policy are highly relevant to sustainable stock returns. Future research could build on these findings by comparing drivers across sustainable asset classes. |
| By Anjeza Kadilli; University of Applied Sciences of Western Switzerland, Geneva |
| Presented by: Anjeza Kadilli, University of Applied Sciences of Western Switzerland, Geneva |
Uncovering transition risk: A new stress testing approach for the banking sectorAbstractThis paper examines the impact of transition risk on the stability of the European financial system. Using a novel dataset, we assess the systemic relevance of euro area banks’ exposures to climate-relevant sectors as of 2024. By clustering banks into communities, we find that those more exposed to transition risk tend to have smaller total exposures towards non-financial corporation and greater sectoral diversification. We then introduce two climate stress-test methodologies: one based on a policy shock and another linked to a regulatory CO2 reduction target. The latter shows that shocks in carbon-intensive sectors propagate through industrial interdependencies, affecting less-intensive sectors and amplifying impacts on highly intensive ones. Under mild scenarios, voluntary capital buffers absorb losses in most banks, amounting to EUR 104 billion and EUR 54 billion for the two methodologies, indicating overall system resilience. In extreme scenarios, however, losses rise to EUR 209–220 billion, with capital depletion of 2.4–2.6% of risk-weighted assets; voluntary buffers cover losses in 85–90% of banks. The CO2-based approach highlights the importance of indirect input–output spillovers, which account for 73% of total losses. |
| By Roberto Calogero Panzica; banco do portugal Martin Saldias; Banco de Portugal |
| Presented by: Roberto Calogero Panzica, banco do portugal |
Climate policy and banks’ portfolio allocationAbstractHow do banks respond to transition risk and which mechanisms drive this response? We shed new light on this question using data on granular international large exposures of UK banks. Climate policy is the main source of transition risk we use. We find that an increase in climate policy stringency on average leads to a decline in the share of lending that is exposed to transition risk. However, this finding is not uniform across banks: banks with a lower initial exposure to transition risk decrease their transition-risk exposure by more and increase their transition-aligned exposure, while banks with a high initial exposure to transition risk further increase their exposure to those sectors. We also find evidence supportive of outward international spillovers through banks’ cross-border lending portfolios: banks increase transition risk-exposed lending to a given country if climate regulation gets tighter in other countries banks have such exposures to. |
| By Dennis Reinhardt; Bank of England |
| Presented by: Dennis Reinhardt, Bank of England |
Trump the Greenium? Evidence about the US Withdrawal from the Paris AccordAbstractThis paper studies how major political climate shocks affect the pricing of green bonds, using the election of Donald Trump in 2016 and the U.S. withdrawal from the Paris Accord as quasi-experimental events. I construct a matched panel of green and conventional bonds using issuer, rating, currency, and structural features. The greenium is the residual component of the yield differential between a green bond and its synthetic counterpart that is unexplained by liquidity gaps. Using a matched panel of green and conventional bonds I compute the yield differential between green bonds and synthetic conventional benchmarks. Despite expectations of repricing following the withdrawal, there is no significant increase in the greenium, suggesting that investor demand for green bonds remains resilient to transitory regulatory shocks. Instead, I see liquidity conditions compressing after the presidential election: Bid-ask spreads differentials of green and conventional bonds remain similar on average, but the variance is significantly lower after the presidential election. |
| By David Echeverry; Universidad de Navarra |
| Presented by: David Echeverry, Universidad de Navarra |
The Effects of Climate Change and Climate Policy on Credit RiskAbstractThis study examines how climate-related physical and transition risks affect credit risk. We develop a modular framework based on a threshold model for credit migrations, linking latent credit factors to key economic indicators to measure credit risk in bond markets. Using historical rating migrations, we estimate the model parameters and apply the framework to U.S. data to assess the implications of alternative climate policies. These policies generate projected paths for the credit factors that differ markedly in direction, magnitude, and volatility. These differences translate into substantial variation in both expected losses and tail risks for diversified bond portfolios. Notably, high-quality bond cohorts are most sensitive to policy choices. Comparisons with a continuation of current policies show that orderly transitions (characterized by reduced physical damages and increased transition costs) entail higher initial expenses but deliver net savings by 2050. In contrast, disorderly transitions result in steep cost increases after 2030 and overall higher costs by 2050. |
| By Erik Kole; Erasmus University Rotterdam Rasmus Lönn; Erasmus School of Economics - Erasmus University Rotterdam Matthijs Leegstra; Erasmus School of Economics, Erasmus University Rotterdam |
| Presented by: Erik Kole, Erasmus University Rotterdam |
| Session 7: CLIMATE POLICY AND TAXATION March 23, 2026 13:30 to 15:30 Location: HoF E.01 (Deutsche Bank) |
Policy Uncertainty and Heterogeneous Effects of Climate PolicyAbstractClimate policies are being implemented in an environment where details, timing, and political durability are often uncertain. This paper studies how such policy uncertainty shapes aggregate dynamics and the distribution of costs and benefits across households. Motivated by the Inflation Reduction Act (IRA) and related climate-policy packages, we quantify heterogeneous effects once general equilibrium spillovers across sectors and agents are taken into account. We develop a New Keynesian Environmental DSGE model with nominal rigidities, an energy sector with clean and dirty inputs, and climate damages. On the household side, the economy features three agents with distinct income sources and saving opportunities: hand-to-mouth workers who cannot save, savers who smooth consumption intertemporally, and capitalists who own firms and choose investment across multiple capital types, including clean and dirty energy capital. Climate policy operates through a carbon tax on dirty energy and a green investment tax credit (ITC) that subsidizes clean investment; the carbon tax is modeled as a standard carbon-pricing shock. Our main contribution is to introduce and disentangle multiple sources of uncertainty around green investment support within this framework. We allow for shocks to the statutory level of the ITC, anticipated (news) shocks about future statutory support, and uncertainty shocks captured by stochastic volatility in ITC innovations. We also incorporate credibility shocks that shift beliefs about future subsidies without changing the contemporaneous statutory ITC. Intuitively, because clean investment is forward-looking and priced by Tobin’s q, policy news and credibility operate primarily through valuation by changing the expected payoff to holding green capital, while statutory ITC shocks work through the current user cost of installing new capital. Higher policy uncertainty changes perceived risk around future support and can alter the timing and strength of investment responses when adjustment is costly. We calibrate the model to the United States and simulate policy experiments that resemble carbon pricing and IRA-style investment incentives under alternative uncertainty regimes. The analysis characterizes aggregate outcomes (output, inflation, investment, and emissions) and heterogeneous effects across households (consumption dynamics and welfare), highlighting how policy uncertainty can reshape the incidence of climate policy and the effectiveness of investment incentives. |
| By Garth Heutel; Georgia State University Givi Melkadze; Georgia State University Alessandro Sardone; Halle Institute for Economic Research (IWH) |
| Presented by: Alessandro Sardone, Halle Institute for Economic Research (IWH) |
Mirrleesian Carbon TaxationAbstractAlleviating the economic damages from climate change is, to first order, a problem of efficiently limiting firms’ emissions. We analyze a neoclassical general-equilibrium model in which fossil-energy use generates climate damages. The model crucially incorporates substantial cross-firm heterogeneity in emission efficiency that we document using a novel firm-level dataset spanning 150 countries. Firms choose energy and other inputs and self-report emissions that are otherwise privately observed. Our central result is a simple formula for the marginal externality damage of emissions—the optimal carbon tax—that accounts for firms’ incentives to distort reported emissions. The optimal tax varies markedly across firms as a function of marginal damages, output, and emission efficiencies, and exceeds common uniform-tax benchmarks, on average. Quantifying the model shows large welfare gains from internalizing reporting incentives: the constrained optimal tax recovers 3/4 of the potential welfare benefits; a uniform tax that does not internalize reporting incentives, by contrast, recovers almost none of them. |
| By Andrea Chiavari; University of Oxford Alexandre Kohlhas; University of Oxford |
| Presented by: Alexandre Kohlhas, University of Oxford |
Carbon, Biodiversity and the Option Values of Climate PoliciesAbstractWe develop a unified cost-benefit framework that allows for a better understanding of biodiversity and climate policies under risk and uncertainty. We derive modified Hotelling rules from a social planner’s welfare optimization. They reveal four forces that jointly determine market design for climate and biosphere conservation: First, discounted marginal climate damages enter the social cost of carbon (SCC) and marginal biosphere services the social value of nature (SVN). Second, climate and nature are coupled, which raises both prices: biosphere degradation increases the SCC, while climate damages raise the SVN. Third, a climate-nature beta quantifies additional hedging components of policies against fat tails, when we consider a stochastic setting with exogenous random shocks. The climate-nature beta summarizes the option values for mitigation, adaptation, biosphere restoration and carbon dioxide removal. Fourth, Markov markups quantify tipping risks, which we capture by extending the model to a constrained markov decision process with state-contingent transition probabilities. Thereby, we endogenize tipping points: the likelihood of moving into a high-damage regime becomes a function of the atmospheric carbon stock and biosphere integrity, which depend on policy choices. Thus, hazard risks are a policy-sensitive component of the system’s dynamics. The model yields implementable, state-contingent asset-pricing formulas for carbon prices, restoration subsidies, land charges, and capacity payments. We propose institutions at the level of the European Union that could implement Pigouvian taxes and subsides as well as new types of SCC- and SVN-indexed bonds to share non-diversifiable risks arising from Earth's changing climate and the degradation of its biosphere. |
| By Ottmar Edenhofer; Potsdam Institute for Climate Impact Research Max Franks |
| Presented by: Max Franks, |
The Macroeconomics of Green TransitionsAbstractThe paper investigates the macroeconomics of an energy transition – a shift from brown to green energy production through carbon taxation. Using a medium-scale DSGE model with energy production sectors and endogenous innovation in the green energy sector, we show that an energy transition – initiated through a brown energy tax – resembles a large supply side shock, causing a surge in inflation and energy prices and a decline in consumption. Innovation increases the efficiency of green energy production and drives energy prices down in the medium run. We document that monetary policy plays a critical role for the dynamics and pace of the transition, even if the transition is not explicitly part of the policy rule. A monetary policy with less emphasis on inflation stabilization allows for temporarily higher inflation and energy prices, which boosts R&D and innovation, enhancing welfare and accelerating the transition. |
| By Gregor Boehl Flora Budianto; Technical University Vienna Elod Takats; BIS |
| Presented by: Elod Takats, BIS |
The Green Energy Transition in a Putty-Clay Model of CapitalAbstractAchieving the green energy transition requires reducing reliance on the existing stock of fossil-fuel dependent capital and increasing the share of investment in green energy. A salient concern among policymakers is that a carbon tax, which addresses the carbon externality and thereby provides the correct incentives for green investment, can lead to stranded assets — capital that loses value due to climate policy. Standard macroeconomic models minimize this trade-off by assuming that fuel usage for existing capital can be freely adjusted after investment. We address this limitation by embedding within an integrated assessment model a putty-clay framework that explicitly captures the ex-post irreversibility of capital-fuel ratios. Our analysis highlights important trade-offs between achieving climate goals and mitigating economic costs. Carbon taxes must be 50% higher in our putty-clay model to achieve emissions reductions comparable to standard models, yet the optimal carbon tax is only half as large. This divergence stems from the substantial consumption declines that arise as new investment replaces economically unviable capital. We show that grandfathering existing fossil-fuel capital through targeted tax discounts substantially mitigates the stranded asset problem, lowers short-term economic costs and improves welfare relative to uniform carbon taxation. |
| By Natalie Rickard; Bank of England |
| Presented by: Natalie Rickard, Bank of England |
| Session 8: CLIMATE RISK AND MACRO-FINANCIAL IMPACT 1 March 23, 2026 13:30 to 15:30 Location: HoF 1.27 (Dubai) |
Temperature Distributional Shocks: Identification and Macroeconomic EffectsAbstractThis paper introduces a methodology to identify temperature distributional shocks, i.e., shocks capturing shifts not only in the average but also across different quantiles of the temperature process. Using data for the globe and a panel of 21 economies, we consistently recover three types of local and global temperature distributional shocks and estimate their macroeconomic impacts on output growth, total factor productivity, inflation and inequality. The first type of shock captures a classic distributional shift and yields economic responses consistent with studies that assume the average temperature as a sufficient statistic for climate change. Our key contribution is to uncover two additional shock-types reshaping the temperature distribution while leaving the average approximately unchanged: (i) a variability-shock that moves mid-lower and mid-upper quantiles in opposite directions, and (ii) an extremes-shock that shifts the tails relative to the center. These variability and extremes factor-shocks induce economic responses not documented in standard average-based approaches. Our results reveal the value of modeling changes in the whole temperature distribution for climate-macro analysis and carry important implications for social cost of carbon estimation and climate-related risk assessment. |
| By Maria Dolores Gadea; University of Zaragoza Jesus Gonzalo; Universidad Carlos III de Madrid Andrey Ramos; Bank of Spain |
| Presented by: Maria Dolores Gadea, University of Zaragoza |
Extreme Weather in Europe: Determinants and Economic ImpactAbstractThis paper investigates the relationship between anthropogenic greenhouse gas (GHG) emissions and extreme weather conditions in Europe using a novel panel regression trend–cycle decomposition approach. Using the European Extreme Events Climate Index (E3CI) and its seven subcomponents for 40 European countries since 1981, the study finds a significant statistical association between extreme weather deterioration and both the flow and the stock dimensions of global greenhouse gas emissions. Building on these results, dynamic panel regressions within an Autometrics and model-averaging framework reveal significant contractions in GDP growth determined by worsening climatological conditions. The largest effects are observed in the services sector, and extreme wind and precipitation events are the most damaging. Climate deterioration operates through both supply and demand channels—particularly via private spending and productivity—and contributes to structural economic divergence across Europe. Effective mitigation and sustainable economic development are the most powerful tools to counter these adverse effects, while adaptation and institutional improvements serve as second-best measures, particularly against wildfires and extreme temperatures. |
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| By Marcelle Chauvet; University of California Riverside Claudio Morana; Università di Milano-Bicocca Murilo Silva; Union College - NY |
| Presented by: Claudio Morana, Università di Milano-Bicocca |
Global Temperature and the Global Financial CycleAbstractThis paper investigates how global temperature shocks affect the global financial cycle and US macro-financial conditions. Using a proxy-VAR that combines global and US data with exogenous temperature innovations identified from National Oceanic and Atmospheric Administration records, we show that unexpected increases in global temperature lead to a persistent contraction in world output and a synchronized tightening of the global financial cycle. US industrial production and inflation decline in parallel, indicating that climate variability can propagate through international financial linkages. The results identify global temperature shocks as a new, climate-driven source of global financial fluctuations. |
| By Paolo Gelain; Federal Reserve Bank of Cleveland Marco Lorusso; Newcastle University Business School |
| Presented by: Paolo Gelain, Federal Reserve Bank of Cleveland |
Climate Minsky Moments and Endogenous Financial CrisesAbstractow does a shift in climate policy affect financial stability? We develop a quantitative macroeconomic model with carbon taxes and endogenous financial crises to study so-called “Climate Minsky Moments”. By reducing asset returns, an accelerated transition to net zero initially elevates the crisis probability substantially. However, carbon taxes enhance long-run financial stability by diminishing the relative size of the financial sector. Quantitatively, the net financial stability effect is only negative for higher social discount rates. Even then, the welfare effects of “Climate Minsky Moments” are second-order relative to the real costs and benefits of an accelerated transition. |
| By Matthias Kaldorf; Deutsche Bundesbank Matthias Rottner; Bank for International Settlements |
| Presented by: Matthias Kaldorf, Deutsche Bundesbank |
The macro-regional effects of green public fundsAbstractIn the paper we explored the macroeconomic effects of green public funds. We constructed a novel EU-wide panel on green public funds at regional level, based on project-level information within the context of the European Structural and Investment Funds (ESIF). We exploited cross-regional variation using a panel local-projection instrumental variable method. Our results confirmed that green public funds contribute to raising regional GDP and crowding in private investment. |
| By Carolin Nerlich; ECB |
| Presented by: Carolin Nerlich, ECB |
| Session 9: FINANCIAL RISK AND ASSET PRICES March 23, 2026 13:30 to 15:30 Location: HoF 1.28 (Shanghai) |
Measuring Bank Regulations: A Text-Based ApproachAbstractI introduce a novel text-based measure of U.S. banking regulation intensity from historical newspapers spanning 1926-2023. The Bank Regulation Index tracks changes around crucial events like Glass-Steagall's introduction and repeal. Deregulation displays a boom-bust pattern: increased bank stock returns and lending in the short term, followed by higher crisis likelihood in longer horizons. Decomposing the BRI into topics shows that credit-specific regulation reliably predicts future banking distress beyond well-established leading indicators. This pattern, confirmed across five other anglophone countries, underscores how monitoring credit deregulation through text-based analysis offers policymakers an even earlier warning indicator for detecting financial instability before crises materialize. |
| By Sami Mahmood; National University of Singapore |
| Presented by: Sami Mahmood, National University of Singapore |
Do Bank Stress Tests Constrain Growth?AbstractBank stress tests are intended to strengthen financial stability, yet critics argue they restrict credit and constrain real economic activity. This paper quantifies the effects of the U.S. Comprehensive Capital Analysis and Review (CCAR) stress tests on county-level personal income growth by transforming institutionally endogenous regulatory treatment into plausibly exogenous, geographically varying exposure. I link stress-tested bank holding companies to U.S. counties through subsidiary bank and branch networks, constructing a novel, time-varying index of local exposure. Using a local projections framework, I find that a one-percentage-point increase in CCAR exposure raises personal income growth by about 0.02–0.03 percentage points in the short run, suggesting balance-sheet expansion before reverses and implying that banks eventually deleverage or reallocate assets away from lending as they adjust to the new regime. |
| By Sam Deegan; University College Dublin |
| Presented by: Sam Deegan, University College Dublin |
International Banking Flows and Financial CrisesAbstractThis paper studies the dynamics of capital flows disaggregated by instrument and sector during episodes of different financial crises. We construct a novel indicator of bank inflows and find that they generally contract during twin crises, the simultaneous occurrence of banking and currency crises. This is not observed for other types of capital inflows and other types of crises. We propose a model with financial intermediaries facing financial frictions to rationalize this finding, providing a new explanation based on a feedback loop between bank inflows, bank leverage, and nominal exchange rates that can account for twin crises, and we study how different macroprudential policies can reduce their likelihood. The theoretical predictions find a confirmation in a discrete choice model of early warning indicators for twin crises. |
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| By Francesco Molteni; Independent & RCEA |
| Presented by: Francesco Molteni, Independent & RCEA |
Managing Financial CrisesAbstractIn this paper, we revisit the question of how to manage financial crises using the framework proposed by Bianchi and Mendoza (2018). We show that this model economy exhibits a multiplicity of constrained-efficient equilibria, which arises because the private shadow value of collateral influences the forward-looking asset price. Among these equilibria, the specific one studied by Bianchi and Mendoza (2018) can be implemented using a tax/subsidy on debt alone. In that case, both the ex ante tax and ex post subsidy are quantitatively important for welfare under the optimal time-consistent policy. Limiting either component can lead to a welfare loss relative to the unregulated competitive equilibrium, highlighting the complementarity between crisis prevention and crisis resolution tools. We also show that, under certain conditions, all Pareto-dominant constrained-efficient equilibria entail the unconstrained allocation chosen by a social planner subject to the country budget constraint, and this allocation can be implemented with purely ex post policies. |
| By Gianluca Benigno; HEC- University of Lausanne Alessandro Rebucci; Johns Hopkins University Aliaksandr Zaretski; University of Surrey |
| Presented by: Aliaksandr Zaretski, University of Surrey |
A No-Arbitrage Approach to Asset Pricing using Panel DataAbstractThis paper proposes a novel approach including identification and consistent estimation of valid stochastic discount factors (or pricing kernels). First, we investigate under which conditions we can establish identification for time-varying valid stochastic discount factors (SDFs) treated as a latent process. We show that a sufficient condition for identification is that the cross-sectional mean of pricing errors of a logarithm representation are zero. Second, based on the identification strategy, we propose a no-arbitrage estimator for a valid SDF. Third, we derive the asymptotic properties of this estimator, namely, its consistency and asymptotic normality, when the number of assets and time periods increase without bounds. Fourth, we derive a no-arbitrage one-factor model for the logarithm of asset returns, where the single factor is the logarithm of a valid SDF, containing all the common elements of (log) asset returns. An important by-product of this one-factor representation is that it implies a testable condition of our key identification assumption. Empirically, based on this novel setup, we first estimate a multi-effect linear regression model with intercept and slope heterogeneity allowing us to test our key identifying assumption, which was not rejected by the data. Second, we present a Fama-MacBeth experiment forecasting the cross-section of Fama-French portfolios in sample and out of sample. All in all, results are promising for this novel approach. |
| By Fabio Araujo; BCB Antonio Galvao; Michigan State University João Issler; Getulio Vargas Foundation |
| Presented by: João Issler, Getulio Vargas Foundation |
| Session 10: GREEN BONDS March 23, 2026 13:30 to 15:30 Location: HoF 2.45 (Boston) |
Green PortfoliosAbstractWe develop a long-horizon framework that merges Merton’s intertemporal portfolio theory with the damage-based logic of Nordhaus-type climate models. In this setting, equity investments can damage future production and consumption possibilities through their climate impact. We identify the Social Cost of Carbon (SCC) as a key determinant of both optimal portfolio allocation and equilibrium asset pricing. We derive a four-fund separation result and characterize equilibrium returns. Stocks that have a sufficiently adverse impact on the climate may appear to have positive alphas relative to the CAPM. Using US stock market data for 2007–2019, we estimate the SCC and show that, although the portfolio and pricing effects are moderate, climate externalities translate into measurable adjustments in the cost of capital, offering a tractable benchmark for integrating environmental damages into portfolio theory. |
| By Juan Carlos Parra-Alvarez; Aarhus University Frederik Lundtofte; Aalborg University Thomas Fischer; Lund University |
| Presented by: Thomas Fischer, Lund University |
Anticipating corporate emissions depending on the ambition and early action of companiesAbstractAnticipating future corporate greenhouse gas (GHG) emissions has tremendous potential to help develop cost-efficient long-term investment strategies and to assess climate risks for companies. Traditional projections rely mainly on global estimates broken down by sector and firm characteristics, but lack the information given by their specific decarbonization strategies. In the meantime, many companies have set climate targets that specify their intended emission reductions over different time horizons. This paper presents a methodology to integrate these pledges into firm-level emission projections by aligning them with climate scenario-consistent abatement pathways. By doing so, this method provides a clearer view of future emissions in the economy and how stringent company policies will be. To account for the extent to which firm GHG trajectories support or contradict their ambitions, we introduce a metric called "carbon credibility" that reflects the recent evolution of their emissions relative to their stated targets. This measure serves both as an early indicator of target feasibility and as an adjustment factor for forward-looking projections. Including the carbon credibility of nearly 300 companies in the STOXX 600 index results in almost a 5% increase in projected cumulative GHG emissions up to 2050. Credibility values indicate that half of the sectors in the panel fall short of the efforts required to align with their decarbonization ambition. These results imply higher expected climate risks and call for enhanced corporate actions. |
| By Loïc Marcadet; Université d'Orléans Tom Picard; Nexialog Consulting Matthieu Picault; IESEG |
| Presented by: Loïc Marcadet, Université d'Orléans |
The carbon footprint of green bonds: evidence from project-level dataAbstractWe introduce a measure of green bonds’ carbon footprint based on project-level data and industry guidelines. This measure captures the avoided emissions generated by green-bond financed projects and is constructed by estimating both project emissions and the relevant counterfactual emissions. Using this metric, we revisit the inconclusive literature that evaluates green bonds using firm-level emissions data. We derive several important insights. First, green bonds deliver meaningful environmental benefits: on average, avoided emissions are roughly ten times larger than the emissions generated by the financed projects. Second, in the cross-section, larger issuers undertake projects with higher avoided-emissions intensity. Third, inferences based on our measure and those derived from firm-level emissions yield divergent patterns, particularly with respect to issuer size. Taken together, our findings suggest that the mixed results in the existing literature may reflect a level-of-analysis problem: the environmental impact of green bonds becomes diluted when measured at the firm level. |
| By Emmanouil Pyrgiotakis; University College Dublin |
| Presented by: Emmanouil Pyrgiotakis, University College Dublin |
Cui prodest? The heterogeneous impact of green bonds on companies' environmental performanceAbstractWe develop a signaling model in which green bonds allow to uncover the adoption of clean technologies. Since investors show environmental preferences, green companies end up facing lower financing costs and improving their environmental performance. In particular, green bonds encourage more polluting firms to transition toward a cleaner production. Relying on a large sample of global companies, we successfully test the model implications. Moreover, we show that green bonds issued to finance mitigation activities are the most effective in improving companies' environmental performance. In line with model predictions, these bonds display the largest greenium with respect to their conventional peers. |
| By Andrea Zaghini; Banca d'Italia |
| Presented by: Andrea Zaghini, Banca d'Italia |
The greenness of European Green BondsAbstractBased on a sample of European corporate green bonds issued between 2013 and 2024, we develop a synthetic green indicator that incorporates various factors that contribute to the “greenness” of a bond. This includes information on green labels attributed by data providers based on the intended use of the funds raised, as well as certifications by external institutions. We also include variables relating to the management of green bond proceeds and commitment to ongoing reporting on funded projects, ensuring transparency in bond issuance. To determine its influence on green bond yields, we conducted a regression analysis consistent with the existing literature on measuring the “greenium”. The results highlight a significant negative premium, indicating that, all other things being equal, the greater a bond’s “greenness”, the higher its “greenium”. |
| By Paola Galfrascoli; University of Milano-Bicocca Gianna Monti; University of Milano-Bicocca Elisa Ossola; Università di Milano-Bicocca |
| Presented by: Paola Galfrascoli, University of Milano-Bicocca |
| Session 11: INTERNATIONAL TRADE AND COMPETITIVENESS March 23, 2026 13:30 to 15:30 Location: HoF 3.36 (Chicago) |
Dissecting Trade UncertaintyAbstractWe construct a new data-driven measure of U.S. trade flow uncertainty (TFU), based on the unforecastability of trade flows, and contrast it with the widely used news-based measure of trade policy uncertainty (TPU). Using threshold VARs and smooth transition local projections, we uncover a striking asymmetry: TPU shocks decrease investment, production, and employment only when TFU is already elevated, but these shocks have little real effect when underlying trade flows are stable. Firm-level evidence confirms this state dependence and uncovers an amplifying role for financial constraints. To interpret these results, we develop and calibrate a model in which high TFU amplifies the real effects of TPU through two channels: a financial channel where high TFU makes borrowing constraints more likely to bind, magnifying firms’ investment responses, and a belief channel where firms place more weight on noisy signals about future trade policy when trade flows are volatile. |
| By Juan M. Londono; Federal Reserve Board Sophia Qin; Stanford University Sai Ma; Federal Reserve Board |
| Presented by: Juan M. Londono, Federal Reserve Board |
Tariffs across the supply chainAbstractWhat are the macroeconomic impacts of tariffs on final goods versus intermediate inputs? We set up a two-region, multi-sector model with global production networks, sticky prices and wages, and trade in consumption, investment, and intermediate goods. We show, analytically and quantitatively, that import tariffs on final goods have a smaller negative impact on GDP compared to tariffs on intermediate inputs, as final goods can be more readily substituted domestically. In contrast, tariffs on intermediate inputs lead to larger GDP losses, given the limited substitutability of foreign inputs. Moreover, inflation persistence is lower under tariffs on final goods, whereas tariffs on intermediate goods give rise to persistent cost pressures through production linkages. The results imply that revenue-equivalent import tariffs targeting only final goods can cushion the adverse effects of trade fragmentation. |
| By Nicolò Gnocato; European Central Bank Carlos Montes-Galdon; European Central Bank Giovanni Stamato; European Central Bank |
| Presented by: Nicolò Gnocato, European Central Bank |
Persistent Global Growth Differences and Euro Area Adjustment: Real Activity, Trade and the Real Exchange RateAbstractBased on an estimated two-region dynamic general equilibrium model, we show that the persistent productivity growth differential between the Euro Area (EA) and rest of the world (RoW) has been a key driver of the EA trade surplus since the launch of the Euro. A secular decline in the EA’s spending home bias and a trend decrease in relative EA import prices account for the stability of the EA real exchange rate, despite slower EA output growth. By incorporating trend shocks to growth and trade, the analysis departs from much of the open-economy macroeconomics literature which has focused on stationary disturbances. Our results highlight the relevance of non-stationary shocks for the analysis of external adjustment. |
| By Adrian Ifrim; JRC, European Commission Robert Kollmann; Universite Libre de Bruxelles & CEPR Philipp Pfeiffer; DG ECFIN, European Commission Marco Ratto; JRC, European Commission Werner Roeger; DIW; VIVES, KU Leuven |
| Presented by: Robert Kollmann, Universite Libre de Bruxelles & CEPR |
U.S. Competitiveness and External Debt. Some overlooked aspects of the crisis in the “American order”AbstractIn the prevailing analyses of the crisis of the so-called American-led world "order", one topic has been quite neglected: the impact of price competitiveness on the US current account and the related International Investment Position. Despite the relevance of valuation changes, we argue that current account dynamics remains relevant to US International Investment Position, with the real exchange rate influencing both flows and stocks. Drawing upon and refining Milesi-Ferretti’s (2024) framework, we explicitly incorporate the real effective exchange rate into the analysis, in order to show that a decline in price competitiveness could be one of the factors underlying the deterioration of the US external accounts. This link could be one of the determining factors behind the protectionist turn of the United States and the related crisis of the American-led “order”. |
| By Fabiana De Cristofaro; Italian Ministry of Economy and Finance Emiliano Brancaccio; University Federico II |
| Presented by: Fabiana De Cristofaro, Italian Ministry of Economy and Finance |
A well-crafted BEER: Identifying the fundamental drivers of real exchange ratesAbstractThis paper presents new empirical evidence on the determinants of real effective exchange rates (REERs) using a novel, comprehensive dataset covering 76 countries from 1995 to 2022, with a focus on level REERs. In addition to gross trade weights, we incorporate trade in value-added weights to capture the impact of global value chains on exchange rate fluctuations and macroeconomic imbalances. Using advanced model selection and dimension reduction techniques, we identify key fundamental factors driving REERs and demonstrate that our preferred model outperforms alternative models in terms of robustness without having to sacrifice in-sample fit or pseudo-out-of-sample predictive accuracy. Our analysis exploits the advantages of level REERs over index-based approaches to analyze transition economies and their convergence paths. REER misalignments tend to narrow slowly over time with transition economies showing faster adjustment rates. Furthermore, larger absolute gaps are found to be more persistent. Our findings shed new light on exchange rate misalignments triggered by country-specific and global economic shocks, with important implications for policymakers and researchers. |
| By Mirjam Salish; European Commission and Oesterreichische Nationalbank Mathilde Dufouleur Milan Vyskrabka; European Commission Stefan Zeugner; European Commission |
| Presented by: Mirjam Salish, European Commission and Oesterreichische Nationalbank |
| Session 12: PRODUCTIVITY AND SUPPLY SIDE DYNAMICS March 23, 2026 13:30 to 15:30 Location: HoF 3.45 (Sydney) |
Diagnosing Structural Forecast Errors: A Neural Network Framework for DSGE ModelsAbstractThis paper proposes a novel methodological framework that uses neural networks as diagnostic tools to identify structural misspecifications in DSGE models. Rather than treating hybrid DSGE-neural network models merely as forecasting devices, we demonstrate that the pattern of forecast improvements reveals and theory-driven models fall short. By augmenting a canonical New-Keynesian DSGE model with a Temporal Difference Variational Autoencoder (TD-VAE) and analyzing the resulting neural residual, we can pinpoint the origin of forecasting errors and which shock processes require richer dynamics. Applied to Euro Area data (1980Q1--2019Q4), our diagnostic framework reveals that the linearized Phillips curves constitute the possible primary source of DSGE forecast failure, with cost-push shock dynamics being particularly poorly captured. This methodological contribution shifts the focus from ``can neural networks beat DSGE models?'' to ``what can neural networks teach us about DSGE models?'' We deliberately employ a simple, canonical DSGE specification as a proof-of-concept; future work will extend this diagnostic framework to richer structural models and |
| By Alice Albonico; Università di Milano-Bicocca Marco Guerzoni; Università Milano-Bicocca Florin-Andrei rusu; ECB |
| Presented by: Marco Guerzoni, Università Milano-Bicocca |
Tail risk propagation in inflation expectationsAbstractThis paper examines how tail risks propagate through inflation expectations. I show that when central bank signals have heavy tails and agents face attention constraints, expectation dispersion becomes quantile-dependent and socially contagious. Using textual analysis of FOMC communications and Survey of Professional Forecasters data, I show that the interaction between signal entropy and tail index drives expectation dispersion in crisis quantiles. Key findings are (1) extremal dependence between entropy and dispersion surges during crises, (2) low-attention agents are more sensitive to entropy shocks, and (3) Fréchet-distributed signals reduce crisis dispersion. |
| By Omid Ardakani; Georgia Southern University |
| Presented by: Omid Ardakani, Georgia Southern University |
Why Do Supply Disruptions Lead to Inflation? Survey Evidence from the COVID PandemicAbstractFirms tend to justify price increases as necessary to cover rising costs. However, standard models imply that firms not only adjust prices to cost increases, but also to changes in spending. We present a model where, instead, there is differential adjustment depending on the type of shock. The model is disciplined using a firm survey, which shows that, towards the end of the pandemic, price increases were primarily a response to higher costs. In contrast, firms report not reacting to higher demand to avoid upsetting customers. Supply shocks are responsible for most of the upward adjustment of prices. |
| By Thomas Kohler; Bochum University of Applied Sciences Jean-Paul L'Huillier; Brandeis University Gregory Phelan; Williams College Maximilian Weiß; University of Tübingen |
| Presented by: Thomas Kohler, Bochum University of Applied Sciences |
Firms Adaptation in a Critical Input CrisisAbstractThis paper examines how sudden increases in the price of a critical input affect firms’ capacity to adapt through their relationships with banks. Leveraging an exogenous natural event that caused a sharp and unexpected spike in Mexican electricity prices, we show that firms with pre-existing access to bank credit exhibited greater resilience: they were able to substitute energy with labour by expanding short-term borrowing and increasing employment. However, this adjustment came at a cost, these firms experienced higher loan defaults and more delays in repayment, indicating a deterioration in their credit position and a limited ability to adapt. In contrast, non-banked firms were more likely to experience bankruptcies and reduce their workforce. The preliminary results indicate that whether energy and labour act as substitutes or complements might be determined by firms’ access to credit. At the intensive margin, heterogeneity across banks is crucial. Firms borrowing from banks with constrained capital supply were less likely to obtain support, limiting their ability to substitute labour for energy and increasing their likelihood of default. Moreover, banks are less willing to accept new customers during periods of economic stress, meaning that liquidity, constrained firms may be unable to secure the capital necessary for survival. Overall, our findings highlight that both the presence and the quality of bank relationships significantly influence firms’ survival and capacity to adapt during energy crisis. |
| By Costanza Tomaselli; Imperial College Business School |
| Presented by: Costanza Tomaselli, Imperial College Business School |
Spillovers, Innovation Difficulty, and the Dynamics of ProductivityAbstractThe last few decades the U.S. have experienced rapid technological innovation, driven by the internet, AI, and big data. Yet, aggregate productivity growth has slowed, posing a puzzle for macroeconomists and policymakers. We study this paradox using a medium-scale DSGE model with endogenous technological change, distinguishing between frontier innovation and the probability of successful adoption and diffusion. Estimating the model with U.S. macro and R&D data (1984–2019), we find that spillover shocks dominate short- and medium-run TFP fluctuations, while innovation difficulty shocks act primarily through adoption and diffusion, generating persistent effects. Incorporating patent-based creativity measures reduces the volatility of difficulty shocks and highlights their role as a slow-moving structural force shaping medium- and long-run productivity dynamics. |
| By Alice Albonico; Università di Milano-Bicocca Marco Guerzoni; Università Milano-Bicocca |
| Presented by: Alice Albonico, Università di Milano-Bicocca |
| Session 13: COFFEE BREAK March 23, 2026 15:30 to 16:00 Location: House of Finance Foyer – Ground Floor |
| Session 14: KEYNOTE 2: The Political Economy of Silicon Valley and its Implications for Financial Stability — Hilary Allen (American University), Chair: Katja Lagenbucher (SAFE & Goethe University of Frankfurt) March 23, 2026 16:00 to 17:00 Location: HZ 4 |
| Session 15: KEYNOTE 3: AI and the European Economy — Philip Lane (European Central Bank), Chair: Florian Heider (SAFE & Goethe University of Frankfurt) March 23, 2026 17:00 to 18:00 Location: HZ 4 |
| Session 16: Cocktail Reception (Goethe University of Frankfurt Campus) March 23, 2026 18:00 to 19:00 Location: House of Finance Foyer – Ground Floor |
| Session 17: Pay‑as‑you‑go informal gathering at WAXY’s Irish Pub & Restaurant (Rahmhofstraße 1, 60313 Frankfurt am Main) March 23, 2026 19:30 to 21:30 |
| Session 18: REGISTRATION March 24, 2026 8:00 to 8:30 Location: House of Finance Foyer – Ground Floor |
| Session 19: CLIMATE AND FINANCIAL RISK March 24, 2026 8:30 to 10:30 Location: HoF E.22 (Commerzbank) |
When Climate Risk Becomes Local: Evidence from the U.S. Municipal Bond MarketAbstractDo negative climate-related news affect municipal borrowing costs? This paper examines the impact of local climate change news on municipal bond credit spreads by combining detailed municipal bond pricing data with a novel index of climate-related news constructed from regional media coverage in the United States. Exploiting exogenous variation in county-level news shocks, I identify the effect of perceived climate risk on municipal debt issuance costs using unsupervised machine learning techniques from natural language processing (NLP) and fixed-effects panel regressions. The results show that increased exposure to negative local climate news is associated with higher municipal bond credit spreads of approximately 0.8 basis points per annum. Moreover, the findings indicate that investors respond primarily to news about local climate-related events rather than to broader, global or federal climate change coverage. The results are robust to alternative sentiment measures based on a climate-specific NLP model, underscoring the role of local climate risk communication in municipal bond pricing. |
| By Frederic Grüninger; Ruhr University Bochum |
| Presented by: Frederic Grüninger, Ruhr University Bochum |
Does Biodiversity Risk Affect Financial Risk? Evidence from U.S. Firms.AbstractThis study examines the relationship between biodiversity risk and financial risk using a panel of 1,993 U.S. firms from 2010 to 2022. It analyses how multiple biodiversity proxies influence eight dimensions of financial risk, including systematic, idiosyncratic, downside, and extreme risks. The findings show that stronger environmental (E) performance is consistently associated with lower financial risk, underscoring the role of environmental practices in shaping the biodiversity–financial risk nexus. Among the biodiversity measures considered, indicators of biodiversity-related concern emerge as the most influential factor, displaying the strongest association with firms’ financial risk profiles. Firms disclosing concerns about biodiversity loss or subject to biodiversity-related regulation exhibit distinct risk patterns, particularly in downside and extreme risk measures. The results further indicate that firms’ dependency on and impact within ecosystems—reflecting the double materiality principle—modulate the magnitude of these relationships. The conclusions remain robust under instrumental variable estimation and alternative biodiversity risk specifications. Overall, the study provides empirical evidence and a framework to assess how biodiversity-related exposures affect financial stability and inform sustainable investment and financing strategies. |
| By Almudena García-Sanz; Complutense University of Madrid |
| Presented by: Almudena García-Sanz, Complutense University of Madrid |
Sectoral Green Risk Premia and Transition RiskAbstractEuropean investors price climate-transition risk differently depending on firms’ greenness criteria, economic sectors, and time-horizons. This paper examines how firm-level environmental performance affects European equity returns and whether climate-transition risk carries a price. Using an unbalanced panel of STOXX Europe 600 constituents from 2011–2022, value-weighted “green” portfolios are constructed based on ESG Combined Score (ESGC), total emissions, and emissions intensity. Two novel factor sets are introduced: sectoral green factors, which aggregate long–short returns within Eurostat economic sectors, and synthetic green factors, which weight sectoral returns by Eurostat output multipliers to capture economy-wide transition risk propagation. In pooled OLS regressions controlling for Fama–French factors, the analysis explores (i) how environmental performance influences excess returns across sectors and (ii) whether a risk premium (a “carbon premium” or “greenium”) compensates investors for bearing transition exposure. Findings reveal sectoral heterogeneity: firms with higher ESGC scores or lower emissions typically show lower excess returns, whereas high-emission firms often earn higher returns, especially when ranked by total emissions or intensity. Concurrently, a moderate negative greenium emerges for the most environmentally advanced firms when the ESGC criterion is considered, indicating a willingness to accept lower returns for reduced climate risk. Whereas, a more pronounced positive premium arises if emissions-related criteria are used. By focusing on European data and incorporating synthetic factors that reflect supply-chain effects, this study extends prior U.S.-centric work and offers a framework for pricing climate-transition risk at sectoral and economy-wide levels. |
| By Matteo Bondesan; Collegio Carlo Alberto Andrea Flori; Politecnico di Milano Luca Regis; University of Torino Luca Trapin; Università di Bologna |
| Presented by: Matteo Bondesan, Collegio Carlo Alberto |
Disaster Risk and Wealth InequalityAbstractThe risk of disasters—whether natural, political, or financial—is reflected in GDP tail risk. Based on cross-country data, we first establish a robust link between GDP tail risk and wealth inequality. Next, to explain this pattern, we propose an incomplete markets model in which wealthier households tend to increase their savings in response to heightened tail risk, whereas lower-wealth households save less. This differential savings response exacerbates wealth inequality over time. Finally, using data from a survey-based randomized controlled trial (RCT), we corroborate the mechanism at the heart of the model: we establish a causal relationship between tail risk beliefs and household savings behavior, which systematically varies with wealth. |
| By Alexander Dietrich; Danmarks Nationalbank Gernot Mueller; University of Tuebingen Maximilian Weiß; University of Tübingen |
| Presented by: Maximilian Weiß, University of Tübingen |
Climate Change As a New Source of Systemic Risk: European European Banks and Climate Risk ExposureAbstractThis study examines the relationship between European banks’ climate risk exposure and financial vulnerability. Using the Climate Risk (CRISK) measure of Jung et al. (2025) for a panel of 160 listed banks from 2007:Q3 to 2024:Q4, it assess how bank balance-sheet and market characteristics predict potential capital losses under climate stress scenarios. The findings show no evidence that climate risk increases in banks’ systemic risk exposure. Instead, climate vulnerability is positively associated with liability-side leverage and negatively related to bank size and sensitivity to market and climate conditions, consistent with stronger risk management and climate-transition screening among large banks under European supervisory expectations. Finally, a Pre-Post-Paris Agreement analysis documents a significant decline in climate risk after 2015, suggesting that regulatory and policy interventions have contributed to mitigating banks’ exposure to climate-related risks. |
| By Claudia Cannas; Università Cattolica del Sacro Cuore |
| Presented by: Claudia Cannas, Università Cattolica del Sacro Cuore |
| Session 20: CLIMATE CHANGE AND THE HOUSEHOLDS March 24, 2026 8:30 to 10:30 Location: HoF E.01 (Deutsche Bank) |
Vulnerable House Price Growth - The Role of Structural Shocks and their Amplification through VulnerabilitiesAbstractDownturns in house prices can be triggered by macroeconomic shocks, yet the severity of price drops also depends on prevailing financial vulnerabilities. We account for the relative contributions of these distinct risk determinants by distinguishing shocks as unforeseen events from vulnerabilities as slow-moving conditions that shape the economy’s exposure to tail risk. Based on a data set that comprises 12 advanced economies and employing panel-based quantile local projections, we relate conditional quantiles of house price growth to shocks identified via satellite structural vector autoregressions with sign restrictions and high-frequency-based monetary policy surprises. We find that shock responses are heterogeneous across the distribution and are particularly pronounced in the lower tail. This nonlinearity is amplified by an interaction between shocks and vulnerability, where the latter is measured by the household debt-to-GDP ratio. The results show that a SVARbased contractionary monetary policy shock of one standard deviation reduces the conditional 5th percentile of house price growth on impact by about 2.5 percentage points when household debt-to- GDP exceeds its historical median, compared to only 0.8 percentage points when the debt-to-GDP ratio is at or below the median. To disentangle the effects of shocks as trigger events from their transmission and the prevailing level of vulnerability, we propose a novel structural decomposition approach for unconditional quantiles in dynamic models, generalizing existing quantile decomposition methods. Our results show that differences in the distribution of house price growth across vulnerability regimes are primarily driven by stronger shock transmission and elevated vulnerability, while the magnitudes of shocks themselves are typically similar across regimes. |
| By Matthias Hartmann; Deutsche Bundesbank Lucas Hafemann; Deutsche Bundesbank |
| Presented by: Matthias Hartmann, Deutsche Bundesbank |
Housing Market Structure and Energy Efficiency RenovationAbstractThis paper examines how housing market structure shapes incentives for energy efficiency renovations. Using administrative data from Lithuania, we document that renovation rates vary widely across municipalities despite uniform subsidies. To explain these patterns, we develop a search-and-matching model where market thickness influences homeowners’ ability to capture returns. The model predicts, and the data confirm, that thicker markets reduce gross price effects but improve net returns. Counterfactual subsidy analysis highlights the policy costs of ignoring market structure. |
| By Egle Jakucionyte; Bank of Lithuania Swapnil Singh; Bank of Lithuania and Kaunas University of Technology |
| Presented by: Egle Jakucionyte, Bank of Lithuania |
Led by a green hand: Greta Thunberg, corporate tweeting and the stock marketAbstract. |
| By Henrique Alpalhão; Nova School of Business and Economics Fabienne Röderer; Nova School of Business and Economics José Tavares; Universidade Nova de Lisboa |
| Presented by: José Tavares, Universidade Nova de Lisboa |
The Green Transition and Households' Macroeconomic Expectations: A Survey ExperimentAbstractWe provide novel causal evidence that macroeconomic narrative framing, whether a policy is described as a supply or demand shock, significantly shapes household beliefs. In a randomized survey experiment conducted within the Bundesbank household panel, participants received identical information about a climate policy that was framed differently across treatments. While both the supply and demand narratives lower growth expectations, we find that the supply framing increases inflation expectations, whereas the demand framing does not reduce them. This highlights that how structural policies are communicated, not just what is communicated, critically influences expectation formation. Our findings offer new insights for central bank and government communication strategies during economic transitions like the green transition or AI adoption. |
| By Tjantana Barro; University of Konstanz Michal Marencak; National Bank of Slovakia Giang Nghiem; Leibniz University Hannover |
| Presented by: Michal Marencak, National Bank of Slovakia |
Climate change and socio-economic inequality in the USAbstractWe study the effects of climate change on income inequality in the United States. To do so, we characterize climate change in the US and introduce the climate-inequality Vector Autoregression (VAR). Constructing a data set of daily temperatures over 1920-2019 covering the contiguous US, we document that climate change is more than a phenomenon that increases mean temperatures since the whole temperature distribution has shifted asymmetrically with temperatures in lower percentiles increasing at a faster rate than those in higher percentiles for most US states. Using the climateinequality VAR, we estimate the effects of climate change on income inequality by identifying shocks to temperature distribution characteristics (such as mean and percentiles) via a combination of zero and sign restrictions. We find that the effects of climate change on income inequality not only vary across temperature distribution characteristics but also widely across US states. We find both negative and positive impacts on within-state inequality across the US. There is no robust link between a state’s climate or per capita income and the within-state effects on income inequality considering warming across several temperature percentiles. |
| By Tatjana Dahlhaus; Bank of Canada Barbara Sadaba; Universidad Diego Portales |
| Presented by: Barbara Sadaba, Universidad Diego Portales |
| Session 21: ESG AND THE GREEEN TRANSITION March 24, 2026 8:30 to 10:30 Location: HoF 1.27 (Dubai) |
Network Embeddedness and ESG Performance: A Spatio-Temporal Analysis of Chinese FirmsAbstractThis study investigates how firms’ Environmental, Social, and Governance (ESG) performance diffuse among different inter-firm networks, cover supplier, customer, partner, competitor and interconnectedness strength. On the basis of resource dependency and social network theory, we argue that ESG practices are not solely dependent by firm themselves but also their dynamics of their network relationships. We apply Chinese listed firms as Chinese firms cover multiple industries, includes complex supply-chain network and are growing ESG frameworks. The panel data includes Chinese listed firms from 2009 to 2023 and we construct time-varying and duration-based relationship matrices to estimate ESG spillovers with spatio-temporal autoregressive distributed lag (STADL) model. The results reveal that ESG scores diffuse among network ties, as suppliers’ ESG performance positively influences focal firms, while customers’ requirement of advanced sustainability practices exert coercive pressure that weakens focal firms’ ESG performance; partner effects are modest but grow with longer relationships; and competitors’ ESG has negative spillovers. We further examine transmission channels of network spillovers through innovation diffusion, financial constraints, and industry competition. We also employ robustness checks like alternative spatial models and placebo tests to ensure the validity of our research. All in all, this research contributes to field of sustainability by examining how inter-firm networks shape ESG practices and offering practical implications for managers, investors, and policymakers to strengthen ESG integration in supply-chain networks. |
| By Jiayi Hu; University of Leeds |
| Presented by: Jiayi Hu, University of Leeds |
The Green Value of BigTech CreditAbstractWe study an incentive-compatible mechanism—embedding financial incentives into non-financial actions—that fosters individual environmental engagement and facilitates the private sector's internalization of climate externalities. Leveraging a novel dataset from the world's largest individual carbon‐footprint tracking platform, we demonstrate that linking eco-friendly behaviors to credit limit adjustments motivates users to undertake green actions. The platform benefits from reduced default risk even amid credit expansion, plausibly through a signaling mechanism in which costly green actions reveal environmental type. Climate-responsible individuals tend to exhibit conscientious and disciplined behavior across multiple domains, enabling lenders to infer creditworthiness from green actions. Our structural model estimates an annual green value of \$413.20 million generated from removing financial frictions. This incentive-based approach delivers larger welfare gains than traditional policy instruments such as mandates or subsidies, especially when public green awareness is low. Our findings identify the screening role of green behaviors in household lending and highlight alternative data as a viable source for credit allocation. |
| By Dan Su; Cheung Kong Graduate School of Business |
| Presented by: Dan Su, Cheung Kong Graduate School of Business |
How banks’ sustainability activities shape borrowers’ ESG performance: Evidence of peer effects through lending networksAbstractAs corporate Environmental, Social, and Governance (ESG) strategy has received relatively high attention, financial institutions are playing an increasingly critical role in shaping corporate sustainable behavior. Although existing research has mainly focused on the internal factors that can influence firm’s ESG decision, the role of banks as external organisations who exert ESG influence through credit relationships has not been fully revealed. In this article, we explore how banks’ sustainable strategy affect the ESG performance of their borrowers. Based on a global panel dataset of 2,038 leveraged loan facilities over the period 2002 to 2023, we find that banks’ ESG strategy will significantly promote the improvement of their borrowers’ ESG performance, while designation as green bank is likewise positively related to borrowers’ ESG outcomes. The analysis addresses common endogeneity issues and includes firm and year-fixed effects. Further analysis shows that stable lending relationship between banks and borrowers can significantly enhances the ESG transmission effect, while sustainable regulation at the national level can strengthen banks’ ESG influence. Finally, we found significant ESG peer effects at the industry and regional levels, indicating that the ESG impact transmitted by banks can further spread to non direct borrowing firms. This study expands the literature on sustainable finance, revealing the communication pathways of ESG policies in credit markets. |
| By Geyao Zhang; University of Leeds |
| Presented by: Geyao Zhang, University of Leeds |
Carbon Pricing Policies and Executive Compensation Tied to ESG PerformanceAbstractUsing an international sample of public firms, we exploit the staggered introduction of carbon pricing policies—mechanisms such as carbon taxes that charge firms a price for their emissions—and find that these policies are associated with increased adoption of Environmental, Social, and Governance (ESG) performance measures in executive compensation contracts. The results are consistent with the following view: reducing emissions mitigates climate risks and thus increases long-term value for shareholders but imposes short-term earnings pressure on managers, potentially aggravating agency conflicts. Tying the manager’s compensation to ESG performance aligns incentives and helps resolve these conflicts. Carbon pricing heightens climate risks by increasing the uncertainty of future policy tightening, which incentivizes shareholders to reduce emissions and to incorporate ESG criteria into executive pay. We find consistent results when examining the repeal (implementation) of a carbon pricing policy in Australia (California). We also provide evidence that the positive effect of carbon pricing policies on the adoption of ESG measures in executive contracts is more pronounced in countries with more stringent carbon pricing policies and in firms with higher institutional ownership. |
| By Weimian Ai; Singapore Management University David Samuel; Singapore Management University Liandong Zhang; Singapore Management University |
| Presented by: Weimian Ai, Singapore Management University |
On the roadmap for EU sustainable finance requirementsAbstractThis document presents a roadmap for European sustainable mortgages and consumer loans dedicated to the renovation of dwellings, with a particular focus on compliance with key sustainable finance regulations, most notably, the EU Taxonomy Regulation and the Energy Performance of Buildings Directive (EPBD IV). These acts are increasingly relevant to residential mortgages and renovation loans, both in terms of product design and disclosure obligations. |
| By Marco Angheben; European Datawarehouse Maitane Puente Gonzalez; European Datawarehouse |
| Presented by: Marco Angheben, European Datawarehouse |
| Session 22: GREEN TRANSITION AND THE CORPORATE SECTOR March 24, 2026 8:30 to 10:30 Location: HoF 1.28 (Shanghai) |
Does Financial Development Favor Firms’ Clean Technology Adoption?AbstractThis paper employs a general equilibrium model of firm dynamics to investigate how financial development influences firms’ adoption of clean technologies through two opposing mechanisms. In partial equilibrium, financial development directly facilitates adoption by easing collateral constraints. In general equilibrium, however, financial development tends to impede green transition by crowding out clean investment in technology adoption by financially unconstrained firms. The higher demand for production inputs (i.e., capital and labor) along with financial development raises their prices, reducing unconstrained firms’ profits and slowing their accumulation of internal funds for technology adoption. A numerical exploration of the model indicates that as financial markets become highly developed, the adverse general equilibrium effect outweighs the direct benefits, ultimately hindering green transitions. Furthermore, reducing the upfront costs of clean technologies is shown to alleviate the adverse impacts of financial development on green transition. |
| By Shengyu Li; Tilburg University |
| Presented by: Shengyu Li, Tilburg University |
Strategic Integration of Developing Countries in Green Global Production Networks: The Differential Impact of Exchange Rate Policies on International Renewable Energy InvestmentAbstractAttracting international investment in renewable energy is vital for developing countries seeking to integrate into the green Global Production Network but is often constrained by currency risk arising from exchange rate policies. We examine how different exchange rate policies influence international renewable energy investments through a panel regression with random effects, integrating exchange rate regime, capital account openness, and monetary policy framework, consistent with the Impossible Trinity. We employ difference-in-differences (DiD) and staggered DiD approaches to evaluate the causal impact of transitioning to a floating regime on international renewable energy investments. Results indicate that both soft peg and floating regimes have a significant and positive effect on international renewable energy investments compared to rigid hard pegs, with floating regimes showing the strongest impact. The DiD analyses support positive, localized causal effects of adopting credible and sustained floating regimes, while abrupt or transient transitions can trigger capital flight. These findings provide a framework for developing countries to leverage macroeconomic policy to attract green capital and scale within the global energy transition. |
| By Ilias Chiboub; Mohammed V University of Rabat Hicham sadok; Mohamed V university in Rabat |
| Presented by: Ilias Chiboub, Mohammed V University of Rabat |
Climate Risk in the Supply Chain: Evidence from the Cost of DebtAbstractHow does climate risk propagate through supply chain networks to influence firms’ borrowing costs? We find that a one-standard-deviation increase in major customers’ climate risk exposure raises suppliers’ loan spreads by 8.48 basis points. We explain this finding with a novel liquidity-risk channel, formalized in a simple theoretical model: customers facing higher climate risk increase their use of trade credit, thereby reducing their suppliers’ cash flow. In response, banks raise interest rates for suppliers. This effect is moderated by trade credit dynamics: it’s stronger when suppliers face higher costs to refuse trade credit extensions due to higher switching costs or lower bargaining power, and weaker when customers have alternative funding that reduces their trade credit demand. |
| By Enrico Onali; University of Bristol Yunfan Sheng; University of Bath |
| Presented by: Enrico Onali, University of Bristol |
Carbon Risk in Loan Pricing: Commitment Channels and Real EffectsAbstractWe study how carbon risk affects the pricing of U.S. corporate loans and how firms' and lenders' commitments influence both loan terms and business decisions. Combining syndicated loan data with firm-level carbon emissions, we document a carbon risk premium: financial institutions charge higher loan risk spreads to borrowers with a higher carbon intensity. This premium varies with the environmental commitments of borrowers and lenders. Borrowers signaling commitments---emission targets, emission disclosures, or green loans---receive discounts that decline with increasing carbon intensity, while committed lenders charge higher interest rates to carbon-intensive borrowers. Beyond affecting the carbon premium, commitments influence real economic outcomes by increasing corporate investment and R&D expenditures, and by reducing precautionary liquidity holdings. We also show that the carbon premium in U.S. loan markets intensifies during periods of monetary tightening in line with the risk-taking channel of monetary policy. Notably, the carbon premium is time varying and has declined in recent years. |
| By Yao Dong; King's College London Martina Hengge; IMF Fabian Valencia; International Monetary Fund Richard Varghese; International Monetary Fund |
| Presented by: Yao Dong, King's College London |
Can firms finance their low-carbon transition via the bonds market? Empirical analysis of the EU ETS and bond issuancesAbstractTo meet stringent environmental regulations under the European Emissions Trading System (EU ETS) and transition to low-carbon operations, firms must access new financing sources, one route is through bonds market. Using a novel firm-level dataset that merges financial and bonds market data with information from the EU ETS and the carbon leakage list, this paper empirically investigates the relationship between the EU ETS and bond issuance, examining how the bonds market can finance firms’ low-carbon transitions. A Probit model is employed to estimate firms’ probability of issuing conventional and green bonds. The analysis shows that rising CO2 prices significantly increase firms’ likelihood of issuing both conventional and green bonds, although conventional bonds exhibit a stronger response. Additionally, firms listed on the EU ETS leakage list initially demonstrate lower probabilities of issuing bonds, but as CO2 prices rise, their probability of issuance notably increases, highlighting heightened financial pressures from environmental compliance costs. Firms with higher CO2 emissions intensity exhibit lower probabilities of bond issuance. The findings reveal new mechanisms: at higher CO2 prices, firms experiencing recent growth in net assets become significantly less likely to issue conventional bonds, potentially due to increased financial constraints and compliance-related uncertainties. |
| By Nada Fadl; University of Cologne |
| Presented by: Nada Fadl, University of Cologne |
| Session 23: MACROECONOMIC SHOCKS March 24, 2026 8:30 to 10:30 Location: HoF 2.45 (Boston) |
High Frequency Cross Sectional Identification of Military News ShocksAbstractThis study develops a two-step procedure to identify and quantify fiscal news shocks. First, we augment a narrative identification strategy using Large Language Model searches to compile events (2001–2023) that altered the expected path of U.S. defense expenditure. Second, for each event, we estimate market-implied shifts in expected defense spending with cross-sectional regressions of contractors’ stock returns on their reliance on military revenues. We show that this approach statistically validates each event, quantifies each shock in an intuitive, model-consistent fashion, and readily generalizes to other macroeconomic contexts. Employing the estimated shocks in a shift-share analysis yields a two-year MSA-level GDP multiplier of approximately 1 for U.S. military build-ups. |
| By Edoardo Briganti; Bank of Canada |
| Presented by: Edoardo Briganti, Bank of Canada |
Quantifying Demand Shocks in the Green and Digital TransitionAbstractWe use web-search data to construct indices that proxy the derived demand for metals - specifically cobalt, lithium, and nickel - which are key inputs in technologies driving the energy and digital transition. These indices are incorporated into monthly Structural Vector Autoregressive (SVAR) models of the global markets for these metals. Identification of structural shocks relies on a combination of zero, static and dynamic sign restrictions, allowing us to disentangle supply shocks from multiple demand-side shocks that drive the real price of metals. In particular, we isolate a demand component linked to the technological uptake of metals in the energy and digital transition. Our framework enables a quantitative assessment of the relative contribution of each structural driver to price dynamics and highlights the growing macroeconomic relevance of technology-linked metal demand. |
| By Andrea Bastianin; University of Milan Luca Rossini; University of Milan |
| Presented by: Andrea Bastianin, University of Milan |
Dancing in the Dark: Sentiment Shocks and Economic ActivityAbstractThe business cycle is driven by expectations—some justified, some not—as documented by a host of studies. What is less clear are the conditions that make the economy susceptible to “sentiment shocks.” In this paper, we document that uncertainty, as measured by forecaster disagreement, is essential. At times when disagreement is low, sentiment shocks hardly matter for economic activity but are fully absorbed by prices. If, instead, disagreement is high, they move activity with little impact on prices. We obtain these results based on time-series data and a theoretical account based on a New Keynesian model with dispersed information. |
| By Maximilian Boeck; Friedrich-Alexander-University Erlangen-Nuremberg Zeno Enders; Heidelberg University Michael Kleemann; Deutsche Bundesbank Gernot Mueller; University of Tuebingen |
| Presented by: Zeno Enders, Heidelberg University |
What volatility reveals: agnostic identification of exchange rate shocks in the Trump eraAbstractThis paper studies the financial-market transmission of the April 2025 U.S. tariff announcements, with a particular focus on exchange-rate dynamics. We examine whether market reactions around Liberation Day can be rationalized by a single dominant tariff-announcement shock or instead reflect the coexistence of multiple financial disturbances. To address this question, we employ an agnostic identification strategy based on heteroskedasticity in high-frequency financial data. Our results indicate that while standard risk-off forces dominate on the announcement day, the subsequent evolution of asset prices is driven by distinct shocks associated with Treasury-market functioning, duration-premium revaluation, and global risk sentiment. Our results highlight the importance of multiple shocks to explain the recent market reactions around the trade-policy announcements. |
| By Lucas ter Steege; Deustche Bundesbank Sofia Velasco; Banco de España |
| Presented by: Sofia Velasco, Banco de España |
| Session 24: MONETARY POLICY AND CREDIT March 24, 2026 8:30 to 10:30 Location: HoF 3.36 (Chicago) |
Public debt and monetary policy transmission: evidence from advanced and emerging EuropeAbstractWe analyse whether the transmission of monetary policy to economic activity and prices depends on public debt and especially its maturity composition. Using data for eleven euro area member states, we document that the maturity composition of public debt has non-linear impacts on the transmission of monetary policy. In particular, a higher share of government debt at very short or long maturity is associated with stronger effects of monetary policy shocks on output and prices. Moreover, fiscal policy has generally adjusted in an opposite direction to monetary policy, with primary balances declining in response to contractionary monetary policy shocks. Finally, we construct a novel detailed dataset on government debt for central and eastern European countries and show that the maturity structure in the receiving economy matters for the spillover effects of euro area monetary policy shocks to other European countries. |
| By Christopher Johns; Georgetown University Aaron Mehrotra; Bank for International Settlements Fabrizio Zampolli; Bank for International Settlements |
| Presented by: Aaron Mehrotra, Bank for International Settlements |
How Do Quantitative Easing and Tightening Affect Firms?AbstractWe study how firms respond to quantitative easing (QE) and quantitative tightening (QT) policies of the Federal Reserve. We construct a novel time series of maturity-specific central bank balance sheet shocks covering multiple QE and QT programs. In response to central bank purchases of government bonds, we find that, on average, firms adjust their debt maturity structure, reduce interest expenses and accumulate cash, while their total debt, capital and employment remain largely unchanged. The impact of these policies differs depending on the targeted maturity segment and the credit quality of firms. Policy transmission primarily runs via bond markets. There are positive spillovers to high-rated non-US firms. Our findings can inform the design of balance sheet policies. |
| By Egemen Eren; Bank for International Settlements Denis Gorea; Bank for International Settlements Daojing Zhai; Yale |
| Presented by: Denis Gorea, Bank for International Settlements |
The Limits of Fiscal and Monetary Policy Coordination in Liquidity TransmissionAbstractWe investigate why macroeconomic policy transmission has weakened despite unprecedented coordination. Using U.S. quarterly data and state-space methods, we show transmission effectiveness declined substantially from pre-crisis levels through five multiplicative channels: debt absorption, banking intermediation, institutional coherence, confidence, and inflation expectations. During COVID-19, near-perfect alignment produced historic-low transmission because mechanical frictions---debt service absorbing liquidity and impaired banking---overwhelmed coordination benefits. Counterfactuals reveal debt reduction improves transmission more than perfect coordination. The binding constraint has shifted from policy alignment to structural impediments coordination cannot remedy. Current trajectories risk stabilization failure. Restoring effectiveness requires comprehensive reform: debt sustainability, banking resilience, coordination mechanisms, and credible commitments. Coordination is necessary but no longer sufficient. |
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| By Ioannis Paraskevopoulos; Universidad Pontificia Comillas |
| Presented by: Ioannis Paraskevopoulos, Universidad Pontificia Comillas |
Banks, Firms, and Households: Credit Shock Amplification and Real EffectsAbstractWhile a large literature has examined how bank credit shocks affect firms or households, it has not accounted for the fact that such shocks may simultaneously impact both. In this paper, we overcome this limitation and disentangle the real impact of a credit market disruption into the effect of firm-side credit shocks, individual-side credit shocks, and their interaction. To this end, we construct a novel dataset linking Norwegian employees to their employers and their respective bank relationships. We show that individuals’ labor income and consumption decline by 1–2% when only they or only their employer face a credit shock, compared to the benchmark where neither do. However, when individuals and their employer simultaneously face a credit shock, labor income and consumption decline by nearly 6%, revealing a strong amplification effect. This amplification arises because personal credit constraints hinder individuals’ consumption smoothing and job search when confronted with wage cuts or layoffs triggered by their employer’s credit constraints. Our findings suggest that this mechanism also shapes the aggregate transmission of credit shocks. |
| By Jin Cao; Norges Bank Cedric Huylebroek; KU Leuven |
| Presented by: Jin Cao, Norges Bank |
Monetary Policy and Credit Gap: What about Central Bank Independence?AbstractThis study analyzes the influence of monetary policy on financial sector imbalances focusing on the role of central bank independence in transmitting monetary policy to the credit markets. Based on panel data fixed effects and system GMM analyses on 41 developed and developing countries having quarterly data between 1980 and 2022, the study establishes that the expansionary monetary increases credit-to-GDP gap. However, this relationship weakens and even gets reversed for countries having higher central bank independence, with a stronger diminishing effect in the post-Global Financial Crisis period. This main finding is robust to different specifications, proxies and estimation methods, and holds both for conventional and unconventional policy instruments. The main drivers of these results are the monetary policy autonomy, limitations on lending to government and disclosure practices components of the central bank independence index. These results indicate that there is trade-off between credibility and flexibility of central banks: while central bank independence is crucial for controlling inflation, it limits monetary policy’s influence on supporting credit expansion, especially during financial distress. |
| By Bilge Karatas; Utrecht University |
| Presented by: Bilge Karatas, Utrecht University |
| Session 25: COFFEE BREAK March 24, 2026 10:30 to 11:00 Location: House of Finance Foyer – Ground Floor |
| Session 26: CARBON EMISSIONS AND MONETARY POLICY March 24, 2026 11:00 to 13:00 Location: HoF E.22 (Commerzbank) |
The ECB’s Green Put: From Cheap Talk to Priced ActionAbstractStandard asset pricing theory predicts a "carbon premium" for high-emission firms, yet recent realized returns have shown the opposite. We show that European Central Bank (ECB) climate communication acts as a "Green Put," a systematic policy signal that has persistently penalized brown assets and limited the return premium they would otherwise have achieved. To capture these shocks, we construct the Central Bank Climate and Nature Communication (CB-CNC) index, a novel high-frequency measure of ECB sustainability involvement from 1997 to 2025. Using a Large Language Model, the index distinguishes between "Action" and "Materiality" focused communications and integrates "Nature" alongside "Climate." We find that only ECB "Action" shocks—not "Materiality" rhetoric—drive the repricing of brown firms in both equity and bond markets. A counterfactual analysis shows that the cumulative impact of this "Action" talk has effectively eliminated the brown premium, preventing high-emission firms from realizing approximately 30\% in cumulative outperformance since 2018. |
| By Tristan Jourde; Banque de France Urszula Szczerbowicz; SKEMA Business School Floris Van Dijk; Banque de France |
| Presented by: Tristan Jourde, Banque de France |
The Power of Words: Central Bank Green Communication and Performance of Energy SectorsAbstractThis paper investigates the effect of climate- and energy-related (green) communication by the European Central Bank (ECB) on the performance of renewable and fossil-based energy sectors. Using a sentence-embedding natural language processing method, we identify 247 ECB speeches from 2015 to 2024 that explicitly reference both climate and energy themes, categorize them, and compute a green score for each. The analysis reveals prominent topics of climate and financial risk, and monetary policy and economic conditions, along with consistently positive and trust-related emotional cues. We then use high-frequency identification to estimate the effect of ECB green speeches on the return differential between the green and the brown energy sectors. The results show that such ECB communication positively and significantly affects sectoral relative returns, highlighting the communicative role of the ECB in influencing the relative performance of green and brown energy sectors. The results remain robust across a series of sensitivity analyses. The effect does not change significantly with respect to the outbreak of the Russian--Ukrainian war or the ECB communication topics. |
| By Karen Davtyan; Autonomous University of Barcelona Adel Kalozdi; Universitat Autonoma de Barcelona |
| Presented by: Karen Davtyan, Autonomous University of Barcelona |
Carbon Emissions and the Transmission of Monetary PolicyAbstractThis paper investigates the dynamic causal effects of monetary policy on carbon emissions in the United States through a Structural Vector Autoregression (SVAR) model. I find that, contrary to conventional wisdom, a contractionary monetary policy shock leads to a significant increase in total carbon emissions from energy consumption, even as economic activity declines. The impact is sizeable, as a 25-basis-point tightening leads to a rise in emissions of about one percent. This countercyclical response is driven by contrasting sectoral dynamics: whereas emissions from the industrial sector decline, as expected, emissions from non-industrial sectors rise significantly in the short run. A detailed analysis reveals that the channels of monetary policy transmission vary in strength and relevance across sectors and help explain these heterogeneous responses: while the conventional aggregate demand channel plays a central role in the response of industrial sector emissions, the evidence suggests a more significant role of commodity price and energy reallocation channels for the transmission of shocks to non-industrial sectors. |
| By Jose Nicolas Rosas; Banco de España |
| Presented by: Jose Nicolas Rosas, Banco de España |
Greenback? Sustainable Investing and the International Transmission of Monetary PolicyAbstractThis paper studies how US monetary policy shocks affect foreign firms depending on their carbon emissions. Combining high-frequency monetary surprises with firm-level data for about 5,000 non-US firms across 38 countries, I show that US monetary tightening disproportionately impacts higher (“brown”) relative to lower (“green”) emitters: investment, debt, and equity prices decline more sharply, while bond spreads rise more for firms with higher carbon intensity. To rationalize these findings, I develop a model featuring a global sustainable investor with (i) limited risk-bearing capacity for transition-risky assets and (ii) with preferences for holding green securities. Both channels imply that tighter US monetary policy widens the return differential between brown and green assets, and thus disproportionately decreases capital and investment for brown firms, in line with my empirical evidence. As both channels operate in the same direction, this leads to an identification challenge, which I overcome by matching granular investor-firm data for US global funds’ holdings and the universe of syndicated lending to non-US borrowers. I identify the risk-bearing channel by estimating US spillovers holding investors’ preferences constant while exploiting variation in firms’ carbon intensity; and vice versa for the preferences channel. Through this strategy, I find support for both channels. My findings suggest that emission-dependent monetary spillovers can make greener countries more resilient to US spillovers, while browner ones, commonly emerging economies, are penalised. |
| By Marco Garofalo; Bank of England - University of Oxford |
| Presented by: Marco Garofalo, Bank of England - University of Oxford |
Does Climate Vulnerability Weaken Monetary Policy Transmission? Evidence from Emerging Markets and Developing EconomiesAbstractThis paper examines whether climate vulnerability weakens the effectiveness of monetary policy transmission in Emerging Markets and Developing Economies (EMDEs). Using an annual panel of 54 EMDEs over 2000–2020, it estimates the pass-through from policy rates to bank lending rates in a two-way fixed-effects framework and, as a robustness check, with Blundell–Bond system generalized method of moments (GMM). Climate risk is measured by the ND-GAIN sensitivity index, which captures countries' exposure and structural vulnerability to climate hazards. The paper finds that greater climate vulnerability significantly reduces the pass-through of policy rates to lending rates, consistent with the view that climate-related credit risk and funding frictions impair bank-based transmission. The dampening effect is economically meaningful and robust to alternative specifications, interest-rate measures, and sample splits based on global financial conditions. The results suggest that climate risk is a structural determinant of monetary policy transmission in EMDEs and should be incorporated into macro-financial surveillance and the design of monetary and prudential policy frameworks. |
| By Liuqing Yu; National University of Singapore Ramkishen Rajan; National University of Singapore Sasidaran Gopalan; National University of Singapore |
| Presented by: Liuqing Yu, National University of Singapore |
| Session 27: CLIMATE CHANGE AND THE ENERGY SECTOR March 24, 2026 11:00 to 13:00 Location: HoF E.01 (Deutsche Bank) |
Green Tax Pass-Through to Retail Fuel Prices and Firm Heterogeneity: Evidence from FranceAbstractCombining a natural experiment and high-frequency information on retail fuel prices, we investigate the level, dynamic, heterogeneity, and dependence of the pass- through of a green tax. The green tax’s economic incidence passes largely to consumers but with significant heterogeneity across gas stations. The magnitude and speed of pass-through vary between 84% and 100%, and two and eleven days. The frequency of price changes shapes the tax’s incidence. Firms frequently adjusting prices pass through the tax, whereas those that do not, adjust their high markups due to strategic complementarities that slow down the pass-through according to a heterogeneous-firm model. |
| By Nikolaos Charalampidis; Université Laval Justine Guillochon; Laval University |
| Presented by: Nikolaos Charalampidis, Université Laval |
Fracking the Union? Oil Shocks and the Rise of U.S. Political PolarizationAbstractPolitical polarization has become an important source of macroeconomic uncertainty, yet its relationship with commodity markets remains poorly understood. This paper investigates the evolving link between U.S. partisan conflict and crude oil returns using a Markov-switching Granger causality approach that incorporates time-varying volatility and correlation, allowing for the endogenous detection of structural breaks in predictive relationships. Using monthly data from 1981 to 2025, we identify two distinct regimes. Prior to 2009, oil shocks systematically Granger-caused increases in partisan conflict, highlighting the destabilizing effects of import dependence and global supply disruptions. After the global financial crisis and the shale boom, this predictive channel largely disappeared, with oil prices no longer providing consistent information about domestic political polarization. Our findings challenge the conventional view that oil prices reliably signal U.S. political conflict, suggesting instead that their informational value depends on broader energy and political conditions. |
| By Rubens Morita; University of Exeter Charisios Grivas; Aalborg University |
| Presented by: Rubens Morita, University of Exeter |
Soft Power: Does It Help Foster CO2 Emissions Reduction?AbstractIntroduction According to its proponent, Joseph Nye of Harvard University, soft power is the ability to influence the behavior of others to get the outcomes you want through co-opting rather than coercing. Thus, it is soft as opposed to hard power. Nye’s three pillars of soft power are: political values, culture, and foreign policy. According to him, “in order to deploy soft power to achieve their wider foreign policy goals, governments must first understand the resources they can deploy and understand where they might be effective. Up to now, this has too often relied on guess work and intuition with little chance for countries to compare either resources or capabilities, let alone performance” (The Soft Power 30 Report, 2019: https://softpower30.com/). The Soft Power 30 project purports to provide aggregate and disaggregated measures of Soft Power for individual countries. The methodology for the construction of the Soft Power Index (SPI) builds on the political values, culture, and foreign policy pillars, using over 75 metrics across six sub-indices of objective data and seven categories of new international polling data. The index combines both objective data across six categories (Government, Culture, Education, Global Engagement, Enterprise, and Digital) and international polling, providing a comprehensive framework for the analysis of soft power (see for more details https://softpower30.com/what-is-soft-power/). Notwithstanding the problems and issues associated with measurement, country level data for the SPI are publicly available from the Soft Power 30 project website https://softpower30.com/). Annual data for the five-year period 2015-2019 are available for 30 countries, largely advanced economies. The list of countries and the SPI data are presented in Table 3. Research Question It has long been recognized that non-economic variables may help explain economic phenomena. In applied economic work it has become customary to include socio-political variables to explain economic issues especially in development and economic growth economics, macroeconomics, environmental economics. In this note we get inspiration from, among others, Alesina, Ozler, Roubini, and Swagel (1996), Barro (1996), Aisen and Vega (2011) and Acemoglu, Naidu, Restrepo, and Robinson (2019), and ask whether soft power helps foster a country’s economic growth or its GDP level. In addition, as one crucial pillar of soft power is foreign policy and a global public good such as climate change mitigation cannot be provided without the active participation of as many countries as possible, we also ask whether there is evidence that soft power helps bring about a reduction in CO2 emissions. Econometric Investigation Because the time period of the available SPI data is quite limited, we also exploit the variation of the data across countries and estimate our equation with a simple, static fixed effects method. Our equation is: 〖lnY〗_it= α_i+β〖SPI〗_it+γ〖lnZ〗_it+u_it i=1,..,29; t=2015,..,2019 where Y is the dependent variable, SPI the Soft Power Index, Z are control variables, and u is an error term. As dependent variable we will use three measures of economic performance: lnGDP, lnGDPpc=ln(GDP/POP), ∆lnGDP. That is GDP, per capita GDP, and GDP growth rate. Note that GDP is expressed in constant PPP dollars. In addition, we look at emissions of carbon dioxide from fuel combustion, both in absolute and per capita terms. Thus: lnCO2 and lnCO2pc=ln(CO2/POP). Our provisional list of control variables includes: population, urban population, population density, population growth, share of urban population,gross fixed investment,degree of openness ((import+export)/gdp), degree of energy independence, energy self-sufficiency, share of renewable energy in electricity generation. All the data are drawn from Enerdata database and come from the World Bank and the International energy Agency. Empirical Results The most interesting result is that the Soft Power Index is statistically significant and helps explain the level of both GDP and per capita GDP. It does not seem to be enough significant in the GDP growth regression. Because the estimated equation involves variables in logarithms, the estimated coefficients are elasticities, or the ratio of percentage changes. Thus, taken at face value, the estimated coefficients of SPI from the first two columns of Table 1 imply that a 1% change in SPI translate into 0.3% change in GDP or per capita GDP. The SPI has the expected negative impact on emissions and it is always statistically significant. This implies that an increase in Soft Power contributes to a reduction of carbon dioxide emissions. The quantitative effect is also here around 0.29-0.33 percent of a point. We note that in keeping with the Environmental Kuznets Curve tradition, GDP has a positive impact on emissions but declining in the per capita specification as the coefficient of square of log GDP is negative and significant. Conclusions In this note we have studied the impact that Soft Power may exert on a country economic performance and CO2 emissions. Our a priori was that, other things equal, Soft Power contributes to economic growth and to climate mitigation. We have used the available data on the Soft Power Index from the Soft Power 30 Project which we have complemented with data on GDP and emissions as well as various other demographic and economic variables. Our statistical analysis confirms our a priori and reveals a statistically significant positive impact of Soft Power on a country’s GDP as well as a statistically significant negative impact of Soft Power on a country’s CO2 emissions. Of course, the analysis presented is to be treated with extreme caution as it is limited in a number of important dimensions. Still, the suggestion remains as to the potential power of Soft Power. Selected references Acemoglu, D., Naidu, S., Restrepo, P., and Robinson, J.A. (2019), “Democracy Does Cause Growth”, Journal of Political Economy 127, no. 1. Aisen, A., Veiga, F.J. (2012), “How Does Political Instability Affect Economic Growth?”, IMF Working Paper WP/11/12. Alesina, A., Ozler, S., Roubini, N., Swagel, P. (1996), “Political instability and economic growth.” Journal of Economic Growth 1, 189–211. Barro, R. (1996), “Democracy and growth”. Journal of Economic Growth 1, 1.27. |
| By Carlo Andrea Bollino; Università di Perugia Marzio Galeotti; Università di Milano |
| Presented by: Carlo Andrea Bollino, Università di Perugia |
Renewable Technologies and Global Spillovers as Drivers of the Energy Transition – A Model-Guided Study and GVAR Empirics AbstractAbstract The paper studies to what extent renewable energy technologies and their international spillovers, supported by public policies, are the dominant drivers of the energy transition. We present a model guided-study and some empirics from a Global Vector Autoregressive Regression (GVAR). The model-guided part of the paper elaborates on the global macroeconomic policies and their role in controlling climate risks through mitigation, adaptation and investing in climate-related infrastructure. Hereby the role of the public sector and public finance and their spillover effects are emphasized. Next, we focus on an empirical validation of the climate-economy model using a 30-country Global Vector Autoregressive (GVAR) framework. To proxy the theoretical model we construct a GVAR model with four endogenous variables per country—GDP growth, CO_{2} emissions growth, renewable energy share growth and efficiency improvements employing parametric bootstrap methods with 299 replications, we generate 90% confidence intervals for Generalized Impulse Response Functions (GIRFs) across a 20-year horizon. Our results provide qualified support for the theoretical predictions: Renewable energy shocks reduce CO_{2} emissions growth, carbon intensity improvement has also a negative effect on emissions and GDP growth has the expected positive effect on CO_{2}. The analysis confirms the importance of international spillovers of knowledge, practices and technologies and highlights the complementarity between of renewable energy innovations and efficiency improvements, generating effective decarbonization. |
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| By Willi Semmler; New School NY, University of Bielefeld |
| Presented by: Willi Semmler, New School NY, University of Bielefeld |
Modelling the Transition of Fossil Fuel CorporationsAbstractThis paper develops a unified theoretical and empirical framework to measure the economic stranding horizon of fossil fuel corporations. We derive a closed-form expression for the termination date as a function of fossil exposure, expected earnings growth, discount-rate components, and adjustment costs. Using firm-level fundamentals, carbon and energy price expectations, and financing information for 23 energy companies from 2014 to 2025, we estimate time-varying stranding horizons through an unscented Kalman filter. The empirical results show that higher carbon price growth and stronger renewable-sector dynamics significantly shorten the stranding horizon. Finally, we derive a targeted transition rule that maps combinations of carbon price trajectories and green financing conditions to a desired transition horizon, highlighting the complementarity between carbon pricing and preferential green financing in designing effective and feasible decarbonization pathways. |
| By Elena Diaz; Universidad Pontificia Comillas Isabel Figuerola; ICADE, Ioannis Paraskevopoulos; Universidad Pontificia Comillas |
| Presented by: Elena Diaz, Universidad Pontificia Comillas |
| Session 28: CLIMATE POLICY AND CORPORATE DYNAMICS March 24, 2026 11:00 to 13:00 Location: HoF 1.27 (Dubai) |
Drought Shocks and Corporate Dynamics: Evidence from European FirmsAbstractThis paper examines the firm-level economic effects of drought conditions in Europe by combining physically grounded climate indicators with a large panel of balance-sheet data. We construct drought measures based on soil-moisture deficits relative to soil-type–specific thresholds derived from the FAO–56 water balance framework and the HTESSEL land-surface scheme, using high-resolution data from the Copernicus Climate Data Store. These indicators are spatially matched to more than two million firms through postal codes, allowing each firm to inherit the local drought conditions over the period 2013–2023. We estimate the dynamic responses of profitability, tangible investment, and leverage to increases in drought intensity using a panel local projections framework. At the aggregate level, drought intensity is associated with a negative response of profitability at all horizons, with the largest decline occurring on impact and gradually weakening thereafter. Substantial heterogeneity, however, emerges across sectors. Among agricultural firms, drought intensity exerts a statistically significant and persistent negative effect on profitability, with the strongest impact materializing contemporaneously and gradually dissipating over subsequent periods. In contrast, the dynamic responses of non-agricultural firms closely mirror those observed in the full sample. For these firms, investment contracts mildly following drought shocks, while profitability and leverage display limited and statistically insignificant adjustments. Overall, the results provide microeconometric evidence that drought intensity generates economically meaningful but short-lived strains for highly exposed firms, while aggregate estimates mask important sector-specific vulnerabilities. By integrating physically informed drought measures into firm-level analysis, the paper highlights the importance of sectoral exposure and dynamic adjustment channels when assessing the economic consequences of climate-related shocks. |
| By Leonardo Ciotti; Luiss Guido Carli University stefano di colli; Confindustria Matteo Renghini; Università Politecnica delle Marche |
| Presented by: Leonardo Ciotti, Luiss Guido Carli University |
Product Relatedness and Latent Production Potential of Green Goods in the EU: Evidence from International Trade FlowsAbstractThis paper exploits the AIPNET dataset on production linkages to develop a novel relatedness measure between products and to map countries’ latent production capacities across 6-digit HS codes. Using Comtrade data paired with AIPNET one-degree network linkages, we propose a new proximity measure and construct two indicators of latent production potential: vertical (VL) and horizontal latency (HL). We test our potential measures by estimating probability surfaces of RCA emergence between 2017 and 2023, finding that higher starting latency scores are associated with higher probabilities to develop comparative advantages. After demonstrating that these measures represent a "promise" for future competitiveness, we exploit them to evaluate the EU’s production potential across some key green technologies and their components in 2023. We interpret our results through the lens of ongoing industrial policy debates in the European Union. More broadly, the proposed tool allows policymakers to identify latent production capabilities and supply-chain linkages, thereby informing targeted industrial policy, procurement decisions, and innovation support for strategic and environmental goods. |
| By Andrea Brasili; EIB Gino Magnini; Cambridge Econometrics |
| Presented by: Andrea Brasili, EIB |
Cross-Border Transmission of Climate Policies through Global Production NetworksAbstractClimate policies do not operate in isolation but propagate through global production networks, affecting industries beyond national borders. This paper combines international input-output data with a granular instrumental variable approach to capture how foreign regulations transmit through upstream and downstream linkages. Distinguishing between market-based policies, non-market regulations, and technology support, the analysis shows that foreign climate policies can enhance domestic productivity, with effects shaped by industry characteristics and operating through technological adjustment along supply chains. The results underscore the importance of accounting for international spillovers when evaluating the economic impact of environmental regulation. |
| By Marius Fourné; Martin-Luther-University Halle-Wittenberg and Halle Institute for Economic |
| Presented by: Marius Fourné, Martin-Luther-University Halle-Wittenberg and Halle Institute for Economic |
Carbon Pricing and AI Diffusion: How Climate Policy Reshapes Automation and Labor MarketsAbstractAutomation technologies differ fundamentally in their energy profiles. Environmental-saving automation (E-type)---robots in lights-out factories, automated warehouses---eliminates the energy overhead of human-compatible work environments. AI-driven, compute-intensive automation (C-type)---large language models, computer vision systems---substitutes massive computational energy for human cognition. We develop a task-based model distinguishing these automation types and show carbon pricing has opposite effects: it accelerates E-type but decelerates C-type automation. Both types coexist within industries, generating a ``composition effect'' that partially offsets aggregate labor displacement. We characterize transitional dynamics with asynchronous adjustment speeds and show results depend critically on the race between carbon pricing and AI efficiency improvements. Both automation types contribute to emissions reduction through opposite channels, making carbon pricing more effective than one-type models suggest. The framework predicts that middle-skill cognitive workers benefit from carbon pricing (protected from AI) while middle-skill manual workers lose (displaced by robots). We derive conditions under which carbon taxation achieves environmental benefits without aggregate employment loss. |
| By Ibrahim Tahri; International Institute for Applied System Analysis |
| Presented by: Ibrahim Tahri, International Institute for Applied System Analysis |
Beyond green jobs: How climate policies reshape skill demandAbstractThis paper studies the effects of Climate Change Policy (CCP) shocks on labour market outcomes in Italian regions between 2013 and 2019, combining regional labour market data with online job advertisements. CCP shocks are measured using the emissions-weighted carbon price (ECP), the OECD Environmental Policy Stringency (EPS) index, and high-frequency carbon policy surprises à la Känzig. We find that CCP shocks have contractionary effects on macroeconomic variables and labour market flows, including employment, hours worked, hires, and separations. In contrast, job postings respond positively and persistently, with vacancies requiring green skills increasing more than other vacancies. These results point to intensified labour market reallocation rather than aggregate expansion, as climate policies accelerate demand for green skills amid transitional labour market frictions. |
| By Angelica Bertucci; University of Pavia Emilio Colombo; Catholic University of Milano Patrizio Tirelli; University of Pavia |
| Presented by: Angelica Bertucci, University of Pavia |
| Session 29: CLIMATE RISK AND MACRO-FINANCIAL IMPACT 2 March 24, 2026 11:00 to 13:00 Location: HoF 1.28 (Shanghai) |
Accounting for Ocean Impacts Nearly Doubles the Social Cost of CarbonAbstractOceans provide essential benefits to people and the economy, underpinned by the extent and condition of marine ecosystems and infrastructure or “blue” capital. However, the impacts of climate change on blue capital have been largely overlooked in influential indicators such as the social cost of carbon (SCC). Here, we integrate the latest ocean science and economics into a climate-economy model, capturing climate change impacts on corals, mangroves, seaports, fisheries, and mariculture to estimate their welfare repercussions at a global scale. Conceptually, this ocean-based SCC (blue SCC) represents a component of the total SCC currently omitted in standard estimates. We estimate the blue SCC to be $48/tCO2 [38-70, 25th-75th percentile] with baseline discounting, and more than three times as high for an annual rate of 2%. This represents an almost doubling of the SCC estimate from the same model and the existing literature without considering ocean-related impacts. |
| By Francesco Granella; CMCC Foundation |
| Presented by: Francesco Granella, CMCC Foundation |
The macroeconomic effects of extreme weather events in Spain: a high-frequency, regional approachAbstractEurope is already feeling the effects of a rapidly warming climate. Higher temperatures and severe floods, windstorms and wildfires have become defining features of recent years. But what this means for macroeconomic stability and policy is not fully understood. To shed more light on how extreme weather events affect the economy, we combine macroeconomic data at the most detailed regional level and at the highest temporal frequency available with high-resolution meteorological information for Spain’s continental provinces (NUTS-3 regions) from 2000 to 2022. This approach addresses the identification constraints and aggregation biases that have limited previous evidence. Panel local projections show that floods and windstorms trigger substantial and persistent contractions in real regional output per capita, while effects of wildfires are more limited. Extending our analysis to state-dependent local projections, we find that regions with high capital density, limited fiscal space or low insurance coverage see deeper and more persistent output declines, especially after floods. Thus, the effects of extreme weather events are genuine macroeconomic shocks in terms of their size and persistence. Sustained reconstruction support, broader insurance coverage, and targeted adaptation measures are hence crucial to increase macroeconomic resilience in the face of rising climate risks. |
| By Miguel Angel Gavilan Rubio; European Stability Mechanism Jemima Peppel-Srebrny; European Stability Mechanism |
| Presented by: Jemima Peppel-Srebrny, European Stability Mechanism |
Climate stress test of the global supply chain network: the case of river floodsAbstractThis study investigates how extreme flood events can indirectly impact the global supply chain through production disruptions. Using a data-driven, agent-based network model that combines company-level data with flood hazard maps, the research simulates the transmission and amplification of shocks. The findings emphasize that the size of inventories is crucial; a lean-inventory system leads to faster shock propagation, higher losses, and fewer recoveries compared to an abundant-inventory system. Additionally, the study identifies that the number and criticality of flooded companies' trade links, along with the magnitude of the flood, correlate with the speed and severity of contagion. Interestingly, a key metric -the average criticality of affected firms' outgoing links- consistently peaks before the onset of the shock's fast propagation regime. This could serve as an early warning indicator, giving businesses and policymakers precious time to react. By identifying these critical vulnerabilities, this research provides a framework for enhancing the resilience of global supply chains in the face of increasing climate-related and other risks. |
| By Georgios Papadopoulos; Bank of Greece Javier Ojea-Ferreiro; Bank of Canada Roberto Calogero Panzica; banco do portugal |
| Presented by: Georgios Papadopoulos, Bank of Greece |
Quantile Analysis of Climate Risks and Financial Stability in Emerging Market EconomiesAbstractThis study investigates how El Niño and La Niña shocks influence macroeconomic and financial conditions in the areas of South America and South Asia. By employing a quan tile factor-augmented vector autoregression (QFAVAR), which allows for heterogeneous responses across the entire distribution, we analyze potential asymmetries in the responses of six macro-financial variables to climate shocks in seven emerging countries from 2008-M2 to 2025-M6. We use sign restrictions to identify ENSO shocks jointly with other global shocks. El Niño and La Niña shocks are identified in separate specifications. The empirical findings suggest that, at the highest decile, an El Niño shock leads to a maximum drop of 0.6% in equities, whereas a La Niña shock improves them by 0.6%. While the El Niño phenomenon appears to make most emerging countries in the sample vulnerable, the La Niña phenomenon seems to benefit South Asian economies. |
| By Margaux Person; Nantes University |
| Presented by: Margaux Person, Nantes University |
The Climate, it is a Changing - An Analysis of Regional Temperature Anomalies in China Using Extreme Value TheoryAbstractClimate change is increasing the frequency and intensity of extreme weather events, in particular heatwaves. This paper employs a recently proposed measure for modelling time varying extremes to analyse provincial level temperature data from China. Extreme value theory characterizes the approximate distribution of the most extreme observations in a sample. If the population tail is well approximated by a Generalized Pareto (GP) distribution, the largest observations follow a joint Generalized Extreme Value (GEV) distribution. The GEV parameters- location, scale, and tail index- are functions of the sample size and the underlying GP parameters, allowing extreme observations to reveal the population’s tail properties. The approach also allows one to test for the temporal stability of GEV parameters. If the null hypothesis of stability is rejected, the next step is to examine how the parameters evolve over time. This study not only assesses whether extreme heat events have become more frequent but also examines regional variations in these trends across Chinese provinces. |
| By Marc Gronwald; Xi'an Jiaotong-Liverpool University Xin Jin; Duke Kunshan University Sania Wadud; University of Leeds |
| Presented by: Sania Wadud, University of Leeds |
| Session 30: FISCAL POLICY AND FISCAL RISK March 24, 2026 11:00 to 13:00 Location: HoF 2.45 (Boston) |
Fiscal Risks and ConsolidationsAbstractFiscal consolidations substantially reduce debt-at-risk — the probability of very high future public debt outcomes — by simultaneously lowering both expected debt and the uncertainty surrounding it. We document this fact using annual data for 192 countries from 1991 to 2021. These effects are persistent and particularly strong in countries with high initial debt and credible fiscal rules. |
| By Francesco Frangiamore; Università degli Studi di Palermo Davide Furceri; International Monetary Fund Domenico Giannone; Johns Hopkins University Faizaan Kisat; Princeton University Pietro Pizzuto; Università di Palermo |
| Presented by: Francesco Frangiamore, Università degli Studi di Palermo |
The Macroeconomic Effects of Sovereign Risk: New Evidence from U.S. Debt Ceiling EpisodesAbstractThis paper provides new evidence on the macroeconomic consequences of sovereign risk. Exploiting high-frequency movements in Treasury prices around U.S. debt ceiling episodes, I construct a novel instrument to identify exogenous shocks to government repayment risk. These shocks generate immediate financial market disruptions and lead to persistent contractions in real economic activity, even in the absence of an actual default. The key transmission operates through the bank-lending channel: valuation losses on government securities erode bank capital and induce a contraction in credit supply. Investment declines in response, particularly among financially constrained firms, and labor demand falls in capital-intensive sectors, compressing household income and weakening aggregate demand. I interpret these findings through the lens of a DSGE model with nominal rigidities and financial frictions, and use the framework to characterize optimal monetary policy in the presence of sovereign risk. |
| By Dario Cardamone; University of Notre Dame |
| Presented by: Dario Cardamone, University of Notre Dame |
Under Pressure: Sovereign Debt Challenges in a Warming WorldAbstractClimate change is already imposing significant economic costs on advanced economies, with extreme weather events disrupting supply chains, damaging infrastructure, and straining public finances. Adaptation spending is increasing but remains insufficient to ensure long-term resilience. There is a trade-off between allowing climate damages to occur, which reduces economic growth and shrinks the fiscal base, or investing public funds in adaptation measures that reduce future damages but increase immediate fiscal costs. This paper explores this trade-off and compares it with mitigation strategies, which, while incurring short-term transition costs, can help reduce long-term economic and financial risks. The results underscore the need for a balanced approach, integrating both adaptation and mitigation efforts, to ensure economic stability and sustainable public debt over the long run. |
| By Caterina Seghini; Banque de France Stephane Dees; Banque de France Annabelle de Gaye; Banque de France |
| Presented by: Caterina Seghini, Banque de France |
AI Meets Fiscal Policy: Mapping Government Spending Actions Across 64 CountriesAbstractWe build the first quarterly database of discretionary government spending covering countries at all levels of development and use it to compute country-specific government expenditure multipliers for 64 countries. We build the database using Artificial intelligence through a fixed GPT–4.1 prompt applied to Economist Intelligence Unit Country Reports and classify, for each country–quarter since 1952, the stance and motivation of discretionary spending. We retain only spending actions motivated by long–run considerations or inherited deficits and exclude measures framed as countercyclical stabilization. We validate this series using Romer and Romer (2019)’s episodes, lead–lag dynamics of spending and macro fundamentals, and existing action–based consolidation narrative data. We then show, using state-dependent VARs, that not all uncertainty is alike: in advanced economies, multipliers are smaller when broad economic policy uncertainty is high, but fiscal-policy uncertainty and, especially, weak political support are associated with larger conditional multipliers. These estimates are conditioned on an exogenous spending increase that passes our exogeneity filters, these results speak to the effectiveness of spending changes given they are implemented, rather than to how political conditions affect the likelihood that governments undertake such actions in the first place. |
| By Shuvam Das; International Monetary Fund |
| Presented by: Shuvam Das, International Monetary Fund |
Decoding climate-related risks in sovereign bond pricing: A global perspectiveAbstractClimate change can affect sovereign credit risk through both transition and physical channels, but the extent to which these risks are reflected in sovereign borrowing costs remains unclear. Using a panel of 52 advanced and developing economies over 2000–2023, we examine whether transition, chronic physical and acute physical risks influence sovereign bond yields. We find that transition risk is priced: higher greenhouse gas emissions are associated with higher sovereign yields, with stronger effects in developing economies. Chronic temperature-related risks do not appear to influence yields in levels. Acute physical risks have limited average effects in panel regressions, but local projection estimates show that natural disasters can raise borrowing costs in the medium term, especially in countries with weaker fiscal positions. These results suggest that the impact of climate shocks on sovereign borrowing costs depends not only on the hazard itself but also on underlying macro-fiscal conditions |
| By Sofia Anyfantaki; European Central Bank |
| Presented by: Sofia Anyfantaki, European Central Bank |
| Session 31: GEOPOLITICAL RISK March 24, 2026 11:00 to 13:00 Location: HoF 3.36 (Chicago) |
A Geopolitical Risk Indicator for the Euro AreaAbstractGeopolitical risk is a key concern for the Euro Area, yet most available measures reflect a US perspective. This paper introduces a new indicator of geopolitical risk tailored to the Euro Area, based on newspaper coverage from local sources. We show that shocks to this index have significant recessionary and inflationary effects in the Euro Area. In a counterfactual exercise, we quantify the costs of the Russian attack on Ukraine starting in February 2022 in terms of lost output and war-driven inflation. We find that shortages play an important role for the transmission of geopolitical risk shocks, whereas sanctions do not appear to harm the economy. Our analysis is informed by two news-based measures of sanctions intensity and shortages, which we construct specifically for the Euro Area. |
| By Yevheniia Bondarenko; Deutsche Bundesbank Nayeon Kang; Deutsche Bundesbank Vivien Lewis; Deutsche Bundesbank Matthias Rottner; BIS Yves Stephan Schueler; Bundesbank |
| Presented by: Nayeon Kang, Deutsche Bundesbank |
Economic Narratives and Realities of Geopolitical RiskAbstractThis paper examines the relationship between economic narratives surrounding geopolitical events and their actual economic impacts. By employing a largelanguage model on a large set of newspaper articles, we identify whether the narrative of a geopolitical risk (GPR) shock is seen as acting on the supply or on the demand side. For the classification of the narrative, we equip the large-language model with a questionnaire to analyze the event’s economic characterization. A Vector Autoregression model allows us to validate our GPR narrative indices by assessing whether the narratives align with economic realities. By identifying the nature of the geopolitical risk shocks in real time, central banks can more easily gauge the inherent risk to inflation and thus make better informed decisions. |
| By Sarah Arndt; European Central Bank Yevheniia Bondarenko; Deutsche Bundesbank Vivien Lewis; Deutsche Bundesbank Matthias Rottner; Bank for International Settlements Yves S. Schüler; Deutsche Bundesbank |
| Presented by: Yevheniia Bondarenko, Deutsche Bundesbank |
The geopolitics of rarity: Mapping strategic trade dependencies for rare earthsAbstractRare earth elements (REEs) have become indispensable to modern technologies, from electric vehicles and wind turbines to advanced electronics and defense systems. Their strategic relevance is heightened by China’s dominant position across the rare-earth supply chain, where extensive refining capacity and state-directed industrial policy have enabled the country to convert resource advantages into systemic leverage, periodically exercised through export restrictions. Despite diversification initiatives in the United States, the European Union, Japan, and Australia, global REE value creation remains highly concentrated. This paper applies and extends the methodological framework of Gehringer (2023) to quantify strategic import dependencies for REEs and REE-reliant products across major economies. Empirically, it maps production, processing, and trade networks to identify key chokepoints. Conceptually, it situates these patterns within a broader theory of strategic interdependence. The analysis reveals persistent vulnerabilities in globalized production and highlights the geoeconomic risks embedded in contemporary critical-mineral supply chains. |
| By Agnieszka Gehringer; Technische Hochschule Köln |
| Presented by: Agnieszka Gehringer, Technische Hochschule Köln |
Sanctions and the EU–Russia trade relationshipAbstractEconomic sanctions are a central instrument of foreign policy in the aftermath of geopolitical conflicts, yet their effectiveness may be undermined by indirect adjustment mechanisms. This paper quantifies both the direct impact of EU trade sanctions on Russia and the extent to which these measures generate systematic trade diversion through third countries, exploiting the 2014 and 2022 Ukraine–Russia crises as a two-shock natural experiment. The analysis combines a newly constructed panel of quarterly EU27 exports to 151 destination countries from 2012Q1 to 2023Q4 at the HS2 level—covering more than 21 million observations—with transaction-level data on cross-border foreign direct investment involving Russia. Trade effects are estimated within a gravity-based triple-difference framework featuring high-dimensional fixed effects, while FDI dynamics are examined using bilateral investor–target–quarter data encompassing both greenfield investments and mergers and acquisitions. The results indicate that EU exports to Russia in product categories affected by the 2014 sanctions declined by approximately 25 percent, whereas the sanctions introduced in 2022 triggered abrupt and severe contractions exceeding 80 percent. At the same time, EU exports to a limited group of third countries increased sharply after 2022. These potential triangulating countries are not randomly distributed but are disproportionately composed of former Soviet Union members, BRICS economies, and countries exhibiting political alignment with Russia. Overall, the findings suggest that while EU sanctions substantially curtailed direct trade with Russia, their effectiveness was partly offset by predictable patterns of trade rerouting, highlighting the importance of addressing third-country channels in the design and enforcement of sanctions. |
| [slides] |
| By Cristiano De Cesari; Università di Padova Giulio Cainelli; University of Padova Roberto Ganau; University of Padova |
| Presented by: Cristiano De Cesari, Università di Padova |
Chinese Banks and their EMDE Borrowers: Have Their Relationships Changed in Times of Geoeconomic Fragmentation?AbstractWhile Chinese banks have become the top cross-border lender to EMDEs, their expansion has slowed recently, both in terms of volume and market share. Also, the strong correlation of China’s bilateral trade and its banks’ cross-border lending has weakened, while during 2020-22 lending became more positively correlated with FDI. In our paper, we analyse these patterns and we explore the role of borrower risk variables and foreign policies. Our findings show that, although the shifting correlation from trade to FDI is a general EMDE phenomenon, China’s Belt and Road Initiative reinforces it. By contrast, borrowers that potentially benefit from geoeconomic fragmentation do not display stronger FDI-lending relationships. We also find that Chinese banks exhibit different levels of risk tolerance relative to other bank nationalities as borrower country risk variables are positively correlated with Chinese banks’ market shares, but not with their amounts of cross-border lending |
| [slides] |
| By Catherine Casanova; Swiss National Bank Eugenio Cerutti; International Monetary Fund |
| Presented by: Catherine Casanova, Swiss National Bank |
| Session 32: LUNCH March 24, 2026 13:00 to 14:30 Location: House of Finance Foyer – Ground Floor |
| Session 33: ECB SPECIAL SESSION - THE MACRO-FINANCIAL IMPACT OF CLIMATE CHANGE - Tina Emambakhsh, Marien Ferdinandusse, Miles Parker (European Central Bank) - Chair Livio Stracca (European Central Bank) March 24, 2026 14:30 to 15:30 Location: HZ 10 |
| Session 34: KEYNOTE 4: Climate Transition Risks and the Energy Sector — Stefano Giglio (Yale University), Chair: Francesco Paolo Mongelli (Goethe University of Frankfurt) March 24, 2026 15:30 to 16:30 Location: HZ 10 |
| Session 35: KEYNOTE 5: The Impact of Climate Risk On Financial Markets — Robert Engle (New York University), Chair: Claudio Morana (University of Milano-Bicocca, RCEA-Europe) March 24, 2026 16:30 to 17:30 Location: HZ 10 |
| # | Participant | Roles in Conference |
|---|---|---|
| 1 | Ai, Weimian | P21 |
| 2 | Albonico, Alice | P12 |
| 3 | Angheben, Marco | P21 |
| 4 | Anyfantaki, Sofia | P30 |
| 5 | Ardakani, Omid | P12 |
| 6 | Bastianin, Andrea | P23 |
| 7 | Bertucci, Angelica | P28 |
| 8 | Bollino, Carlo Andrea | P27 |
| 9 | Bondarenko, Yevheniia | P31 |
| 10 | Bondesan, Matteo | P19 |
| 11 | Brasili, Andrea | P28 |
| 12 | Briganti, Edoardo | P23 |
| 13 | Cannas, Claudia | P19 |
| 14 | Cao, Jin | P24 |
| 15 | Cardamone, Dario | P30 |
| 16 | Casanova, Catherine | P31 |
| 17 | Charalampidis, Nikolaos | P27 |
| 18 | Chiboub, Ilias | P22 |
| 19 | Ciotti, Leonardo | P28 |
| 20 | Das, Shuvam | P30 |
| 21 | Davtyan, Karen | P26 |
| 22 | De Cesari, Cristiano | P31 |
| 23 | De Cristofaro, Fabiana | P11 |
| 24 | Deegan, Sam | P9 |
| 25 | Diaz, Elena | P27 |
| 26 | Dong, Yao | P22 |
| 27 | Echeverry, David | P6 |
| 28 | Enders, Zeno | P23 |
| 29 | Fadl, Nada | P22 |
| 30 | Fischer, Thomas | P10 |
| 31 | Fourné, Marius | P28 |
| 32 | Frangiamore, Francesco | P30 |
| 33 | Franks, Max | P7 |
| 34 | Gadea, Maria Dolores | P8 |
| 35 | Galfrascoli, Paola | P10 |
| 36 | García-Sanz, Almudena | P19 |
| 37 | Garofalo, Marco | P26 |
| 38 | Gehringer, Agnieszka | P31 |
| 39 | Gelain, Paolo | P8 |
| 40 | Gnocato, Nicolò | P11 |
| 41 | Gorea, Denis | P24 |
| 42 | Granella, Francesco | P29 |
| 43 | Grüninger, Frederic | P19 |
| 44 | Guerzoni, Marco | P12 |
| 45 | Hartmann, Matthias | P20 |
| 46 | Hu, Jiayi | P21 |
| 47 | Issler, João | P9 |
| 48 | Jakucionyte, Egle | P20 |
| 49 | Jourde, Tristan | P26 |
| 50 | Kadilli, Anjeza | P6 |
| 51 | Kaldorf, Matthias | P8 |
| 52 | Kang, Nayeon | P31 |
| 53 | Karatas, Bilge | P24 |
| 54 | Kohler, Thomas | P12 |
| 55 | Kohlhas, Alexandre | P7 |
| 56 | Kole, Erik | P6 |
| 57 | Kollmann, Robert | P11 |
| 58 | Li, Shengyu | P22 |
| 59 | Londono, Juan M. | P11 |
| 60 | Mahmood, Sami | P9 |
| 61 | Marcadet, Loïc | P10 |
| 62 | Marencak, Michal | P20 |
| 63 | Mehrotra, Aaron | P24 |
| 64 | Molteni, Francesco | P9 |
| 65 | Morana, Claudio | P8 |
| 66 | Morita, Rubens | P27 |
| 67 | Nerlich, Carolin | P8 |
| 68 | Onali, Enrico | P22 |
| 69 | Panzica, Roberto Calogero | P6 |
| 70 | Papadopoulos, Georgios | P29 |
| 71 | Paraskevopoulos, Ioannis | P24 |
| 72 | Peppel-Srebrny, Jemima | P29 |
| 73 | Person, Margaux | P29 |
| 74 | Pyrgiotakis, Emmanouil | P10 |
| 75 | Reinhardt, Dennis | P6 |
| 76 | Rickard, Natalie | P7 |
| 77 | Rosas, Jose Nicolas | P26 |
| 78 | Sadaba, Barbara | P20 |
| 79 | Salish, Mirjam | P11 |
| 80 | Sardone, Alessandro | P7 |
| 81 | Seghini, Caterina | P30 |
| 82 | Semmler, Willi | P27 |
| 83 | Su, Dan | P21 |
| 84 | Tahri, Ibrahim | P28 |
| 85 | Takats, Elod | P7 |
| 86 | Tavares, José | P20 |
| 87 | Tomaselli, Costanza | P12 |
| 88 | Velasco, Sofia | P23 |
| 89 | Wadud, Sania | P29 |
| 90 | Weiß, Maximilian | P19 |
| 91 | Yu, Liuqing | P26 |
| 92 | Zaghini, Andrea | P10 |
| 93 | Zaretski, Aliaksandr | P9 |
| 94 | Zhang, Geyao | P21 |
This program was last updated on 2026-03-26 14:10:06 EDT