A Financial Macro-Network Approach to Climate Policy Evaluation
57 Pages Posted: 21 Nov 2017 Last revised: 18 Apr 2018
Veronika Stolbova
University of Zurich, Department of Banking and Finance
Irene Monasterolo
Utrecht University
Stefano Battiston
University of Zurich - Department Finance; Ca Foscari University of Venice
Date Written: April 6, 2018
Abstract
Existing approaches to assess the economic impact of climate policies tend to overlook the financial sector and to focus only on direct effects of policies on the specific institutional sector they target, neglecting possible feedbacks between sectors, thus, underestimating the overall policy effect. To fill in this gap, we develop a methodology based on financial networks, which allows for analyzing the transmission throughout the economy of positive or negative shocks induced by the introduction of specific climate policies. We apply the methodology to empirical data of the Euro Area to identify the feedback loops between the financial sector and the real economy both through direct and indirect chains of financial exposures across multiple financial instruments. By focusing on climate policy-induced shocks that affect directly either the banking sector or non-financial firms, we analyze the reinforcing feedback loops that could amplify the effects of shocks on the financial sector and then cascade on the real economy. Our analysis helps to understand the conditions for virtuous or vicious cycles to arise in the climate-finance nexus and to provide a comprehensive assessment of the economic impact of climate policies.
Keywords: financial networks, feedback loops, climate policies, shock transmission channels, indirect effects, low-carbon transition
JEL Classification: B40, C00, E61, G20
Suggested Citation: Suggested Citation
Veronika Stolbova (Contact Author)
University of Zurich, Department of Banking and Finance ( email )
Andreastrasse 15
Zurich, 8050
Switzerland
+41 44 635 21 03 (Phone)
HOME PAGE: http://www.bf.uzh.ch/cms/en/stolbova.veronika.html
Irene Monasterolo
Utrecht University ( email )
Vredenburg 138
Utrecht, 3511 BG
Netherlands
Stefano Battiston
University of Zurich - Department Finance ( email )
Plattenstrasse 32
Zürich, 8032
Switzerland
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