Research at Moody’s Analytics

A novel framework to tackle credit concentration risks arising from physical damage from climate hazard events, such as cyclones and storms. The framework can be used to satisfy regulatory (BoE, ECB, FED, among others) and disclosure (TCFD) requirements, as well as internal risk management.

Research at Moody’s Analytics

This study documents statistically and economically significant negative impacts of extreme weather events (cyclones, storms, and droughts) on the subsequent valuation of affected firms. The effect on firm valuation, measured by asset or equity returns, can be as large as -2.9% over the first ten weeks post-event. Relative to the existing literature, our study has a broader firm and hazard type coverage expanding to non-U.S. firms and events.

This paper studies the macroeconomic consequences of trade policy uncertainty with an emphasis on its effects on productivity growth. We build a small open economy model with nominal rigidity, endogenous growth through the introduction of new products, and time-varying volatility of import tariffs. Import tariff uncertainty shocks act as aggregate supply shocks. They cause a temporary improvement of the current account along with the real exchange rate appreciation in the medium run. In addition, an increase in import tariff uncertainty causes a sharp decline in the introduction of new intermediate products, which is detrimental to productivity growth and prolongs the effect of the shock. We show that endogenous risk premia is the key channel transmitting the shock to the broader economy and study role monetary policy in shaping it.

(Draft available upon request)

Housing market crashes are associated with household deleveraging and a very persistent decline in economic activity in an unbalanced panel of 50 countries. The persistence of the output response is driven by a slowdown in productivity growth and capital accumulation. To interpret these stylized facts, I construct a two-agent (borrower-saver) dynamic general equilibrium model with occasionally binding collateral constraint tied to housing equity. Productivity grows endogenously in the model through forward-looking innovation investment. When the preexisting level of debt is sufficiently high, negative housing demand shocks cause the collateral constraint to bind and trigger deleveraging. The endogenous slowdown in TFP growth emerges as one of the adjustment margins during this process, prolonging the real effects of a crisis. The initial shock is amplified by a negative feedback loop between deleveraging, borrowers’ housing wealth, and growth. I use the calibrated model to draw implications for macroeconomic policy during episodes of deleveraging.

Why are emerging small open economies are more prone to swings in trend growth than developed? This paper emphasizes the role of occasionally binding credit constraints that cause state dependence and asymmetry in the link between economic activity and endogenous growth. Negative shocks are more detrimental to TFP growth in financially vulnerable economies prone to leverage-deleverage cycles than in economies that can optimally borrow through the cycle.

(A major revision is coming soon)