Time: 2022/10/17(Mon.), 8:00 – 9:30 am (Beijing Time)

Title: Leveraging the Disagreement on Climate Change: Theory and Evidence

Speaker: Russell Wong, Federal Reserve Bank of Richmond

About the Speaker:

Russell (Tsz-Nga) Wong is a senior economist in the Research Department. Wong joined the Federal Reserve Bank of Richmond in July 2016 after working as a senior analyst at the Bank of Canada. He earned his doctorate from Washington University in St. Louis in 2012.

Wong's research interests include monetary and growth theories. His recent policy analysis focuses on payment and settlement, including electronic money, Large Value Payment System, and central counter party clearing.

Abstract:

We present novel insights on how climate change affects financial markets. We model a collateralized mortgage market where agents have different beliefs over a long-run climate risk. In contrast with existing two-period models, our infinite-horizon model predicts more pessimistic agents are more likely to make leveraged investment on properties exposed to the climate risk. They also tend to use longer maturity debt contracts (which are more exposed to the long-run risk). Employing large data on property/mortgage transactions and high resolution sea-level-rise maps, we find robust evidence for these findings. We also document how monetary and securitization policies affect mortgage climate exposure. Our results highlight the importance of heterogeneous beliefs in understanding the effects of climate change on the financial system.