Climate risk and commodity currencies

The positive relationship between real exchange rates and natural resource income is well understood and studied. However, climate change and the transition to a lower-carbon economy now challenges this relationship. We document this by proposing a novel news media-based measure of climate change tr...

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Veröffentlicht in:Working Paper 2020
Hauptverfasser: Kapfhammer, Felix, Larsen, Vegard H, Thorsrud, Leif Anders
Format: Artikel
Sprache:eng
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Zusammenfassung:The positive relationship between real exchange rates and natural resource income is well understood and studied. However, climate change and the transition to a lower-carbon economy now challenges this relationship. We document this by proposing a novel news media-based measure of climate change transition risk and show that when such risk is high, major commodity currencies experience a persistent depreciation and the relationship between commodity price fluctuations and currencies tends to become weaker.