PhD Seminar (Economics): Designing macroprudential stress testing for climate change shocks

Aditya Taruna presents his research on the design of macroprudential stress testing for climate change shocks.

Through a combination of climate change disaster functions and the G-CUBED model, we develop macroeconomic scenarios that take into account climate change risks and address the limitations of traditional stress testing frameworks. Our analysis focuses on the impact of climate change shocks on labor, total factor productivity, and asset prices. Additionally, we investigate how these shocks affect economic output and inflation. Furthermore, we extend our analysis to encompass the response of the banking industry to these shocks and their subsequent impact on macroeconomic conditions. Our findings underscore the importance of considering both physical and financial channels when evaluating the economic implications of climate change, particularly in the context of policy design.