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dc.titleAsymmetric Sovereign Risk: Implications for Climate Change Preparation
dc.contributor.authorGomez-Gonzalez, Jose E.
dc.contributor.authorUribe, Jorge M.
dc.contributor.authorValencia, Oscar
dc.contributor.orgunitFiscal Management Division
dc.coverageLatin America and the Caribbean
dc.date.available2024-03-12T00:03:00
dc.date.issue2024-03-12T00:03:00
dc.description.abstractClimate change adaptation efforts are heavily dependent on a countrys fiscal capacity and the associated costs of undertaking adaptation policies. The current accumulation of high debt levels in emerging and low-income developing countries, which are disproportionately affected by climate change, raises significant concerns. This study shows that sovereign risk, and hence funding costs for governments, exhibits significantly asymmetric reactions to its determinants across the conditional distribution of credit spreads. This aspect, previously overlooked in the literature, has relevant policy implications. Countries with elevated risk levels are disproportionately vulnerable to climate change compared to their lower-risk counterparts, especially in the short term. Notably, investing in climate change preparedness proves effective in mitigating vulnerability to climate change, in terms of sovereign risk, particularly for countries with low spreads and long-term debt (advanced economies), where readiness and vulnerability tend to counterbalance each other. However, for countries with high spreads and short-term debt, additional measures are essential as climate change readiness alone is insufficient to offset vulnerability effects in this case. Results also demonstrate that the actual occurrence of natural disasters is less influential than vulnerability to climate change in determining spreads.
dc.format.extent55
dc.identifier.doihttp://dx.doi.org/10.18235/0012853
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Asymmetric-Sovereign-Risk-Implications-for-Climate-Change-Preparation-.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectCredit Risk
dc.subjectClimate Change
dc.subjectDebtor Finance
dc.subjectDisaster Risk Management
dc.subjectSovereign Guaranteed Credit Risk
dc.subjectNatural Disaster
dc.subjectEconomy
dc.subjectInflation
dc.subjectMacroeconomy
dc.subjectGross Domestic Product
dc.subjectDisaster
dc.subject.jelcodeF34 - International Lending and Debt Problems
dc.subject.jelcodeG15 - International Financial Markets
dc.subject.jelcodeH63 - Debt • Debt Management • Sovereign Debt
dc.subject.jelcodeQ51 - Valuation of Environmental Effects
dc.subject.jelcodeQ54 - Climate • Natural Disasters and Their Management • Global Warming
dc.subject.keywordsCredit Risk;disaster risk;nonlinear dynamics;panel-quantile regressions;preparedness;sovereign risk;vulnerability
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01588
idb.operationRG-E1902
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