Working papers

Climate Risks and Sovereign Risks Nexus, with Marianna Blix Grimaldi, Carlos Madeira, Simona Malovana and Georgios Papadopoulos
Part of the International Banking Research Network (IBRN) research initiatives.

Abstract

We investigate the impact of climate-related risks on sovereign bond yields, taking a short-and medium-term view. First, a panel regression analysis shows that transition and chronic physical risks are associated with higher government bond yields, although the extent varies considerably between different groups of countries. Interestingly, severe short-term physical risks appear to have minimal impact. Second, local projections reveal a positive and statistically significant medium-term effect of the frequency of climate-related natural disasters. We show that these risks influence sovereign yields through their impact on core macro-financial variables while we find limited evidence that these risks are priced into sovereign yields ex ante.

Unveiling the enablers: Exploring country characteristics that encourage emissions reduction, with Panayiotis C. Andreou, Christos Cabolis and Konstantinos Dellis 

Abstract

The transition to sustainability relies on adopting green technology and fostering innovation. While emissions abatement is achieved at the firm level, our study argues that national characteristics significantly shape the decarbonization process. Utilizing the EU Emissions Trading System (ETS) we delve into the relation between national structural and institutional characteristics and the effectiveness of the EU environmental policies. Leveraging firm-level emissions data and structural indicators from IMD and WEF, our analysis spans 540 firms from 2005 to 2018. Our empirical findings underscore several critical imperatives. Firstly, we highlight the pressing need to bridge the skills gap through targeted investments in educational and training initiatives tailored for both traditional workers and managerial personnel. Secondly, we advocate for prioritizing investments in technologies and infrastructure aimed at reducing emissions. Thirdly, we stress the importance of fostering collaboration among stakeholders across various sectors-public, private, educational, and research-to leverage collective expertise towards sustainable outcomes. Lastly, we emphasize the establishment of robust monitoring and evaluation mechanisms to assess the effectiveness of emission reduction measures and identify areas for improvement. Overall, our findings accentuate the catalytic role of strong institutions in empowering firms to drive environmental progress.

Beyond Fixed- vs. Adjustable-Rate Loans: Loan Features and the Pass-Through of Monetary Policy in the Euro Area (draft available), with Karlis Vilerts, Konstantıns Benkovskis, Sebastian Bredl, Massimo Giovannini, Florian Matthias Horky, Vanessa Kunzmann, Tibor Lalinsky, Athanasios Lampousis, Elizaveta Lukmanova, Filippos Petroulakis and Klavs Zutis

Abstract

This study analyzes lending practices across all euro area countries using data on nearly seven million new loans issued to non-financial corporations in 2022–2023. It documents substantial variation in the prevalence of fixed- and adjustable-rate loans, rate fixation periods, and reference rates, resulting in lending rates being exposed to different segments of the risk-free rate yield curve, which, in turn, influence their sensitivity to monetary policy changes. We show that countries with loans tied to risk-free rates with shorter maturities experienced sharper increases in lending rates during the post-pandemic monetary tightening, while those with longer-term risk-free rates observed more muted effects. Moreover, loans linked to shorter-maturity riskfree rates exhibit a stronger pass-through of monetary policy changes, though this effect is partially offset by weaker response of risk premium. These findings underscore the importance of considering loan structure in the design of monetary policy.