A Financial Macro-Network Approach to Climate Policy Evaluation

Veronika Stolbova, Irene Monasterolo, Stefano Battiston

Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftBegutachtung


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.
Seiten (von - bis)239 - 253
FachzeitschriftEcological Economics
PublikationsstatusVeröffentlicht - 2018