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Climate Change and Financial Stability? Recalling Lessons from the Great Recession, No. 21-27

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Climate Change and Financial Stability? Recalling Lessons from the Great Recession, No. 21-27

DATE: August 2021

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ABSTRACT: Some argue that direct economic damages from climate-related shocks are not big enough to have a notable impact on the economy. However, this argument misses an important lesson from the Great Recession: amplifications in the financial markets. In the 2007-09 recession, reactions in the financial markets substantially amplified the initial losses directly related to household default of subprime mortgages. Recent research found evidence of similar amplification of direct climate damages. For instance, climate-related disasters like hurricanes or flooding can cause housing prices to drop even in the absence of direct hurricane or flood damages.

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Phan, Toan and Federal Reserve Bank of Richmond. "Climate Change and Financial Stability? Recalling Lessons from the Great Recession, No. 21-27," Economic Brief (August 2021). https://fraser.stlouisfed.org/title/6034/item/605055, accessed on February 2, 2023.

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