Natural Disasters, Climate Change, and Sovereign Risk

25 Pages Posted: 23 Jul 2020

See all articles by Enrico Mallucci

Enrico Mallucci

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: July, 2020

Abstract

I investigate how natural disaster can exacerbate fiscal vulnerabilities and trigger sovereign defaults. I extend a standard sovereign default model to include disaster risk and calibrate it to a sample of seven Caribbean countries that are frequently hit by hurricanes. I find that hurricane risk reduces government's ability to issue debt and that climate change may further restrict market access. Next, I show that "disaster clauses", that provide debt-servicing relief, improve government ability to borrow and mitigate the adverse impact of climate change on government's borrowing conditions.

JEL Classification: F32, F34, Q54

Suggested Citation

Mallucci, Enrico, Natural Disasters, Climate Change, and Sovereign Risk (July, 2020). FRB International Finance Discussion Paper No. 1291, Available at SSRN: https://ssrn.com/abstract=3648271 or http://dx.doi.org/10.17016/IFDP.2020.1291

Enrico Mallucci (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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