PSDRN Seminar Series 2022-2023
“The Financial Transmission of a Climate Shock: El Nino and US banks”
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Presenter: Nicola Limodio, Associate Professor of Finance at Bocconi University
The paper studies how a climate shock is transmitted through the financial system. The authors’ empirical strategy combines data on climate and banking with El Niño, a natural experiment producing quasi-random variation in US climate. The authors’ findings show that supply factors induce the lending reduction and banks with lower physical capital are more resilient to El Niño. The results are also particularly relevant for low and middle-income countries, since they are exposed to more severe climate shocks combined with underdeveloped financial systems, which may amplify the transmission of climate shocks.