Investing in the Clean Trillion: Closing the Clean Energy Investment Gap

In 2010 world governments agreed to limit the increase in global temperature to two degrees Celsius (2 °C) above pre-industrial levels to avoid the worst impacts of climate change. To have an 80 percent chance of maintaining this 2 °C limit, the IEA estimates an additional $36 trillion in clean energy investment is needed through 2050 -- or an average of$1 trillion more per year compared to a "business as usual" scenario over the next 36 years.This report provides 10 recommendations for investors, companies and policymakers to increase annual global investment in clean energy to at least $1 trillion by 2030 -- roughly a four-fold jump from current investment levels

Financing the Post-2015 Sustainable Development Goals: A Rough Roadmap

We regroup the main types of global development finance into three clusters: concessional public finance (including domestic taxes), public borrowing on market-related terms, and private finance. We look at the main purposes they can be used for, and their interdependence. We consider the global outlook for capital markets, the determinants of country creditworthiness and why grant aid should be prioritised for less creditworthy countries. We suggest that financing plans for most of the new Sustainable Development Goals should be developed at the country level rather than globally, so that key trade-offs can be fully explored. We look at specific policies to unlock access to private sector participation in five key areas -- including social services. We introduce a Market Aid Index to help track donor engagement with the private sector. We investigate how a country's mix of development finance changes as it grows -- the so-called 'missing middle' dilemma. We find that public resources overall fall continuously until a country is well into middle income status, as international assistance falls faster than tax revenues rise. Static per capita income thresholds are becoming increasingly unreliable guides to resource allocation. We look at alternative groupings, especially taking into account fiscal capacity, creditworthiness and vulnerability. We assess the recent literature on trade-offs between rapid growth and climate change mitigation imperatives. We examine the geography of public climate finance, which is intrinsically different from that of development aid, and the lack of a credible 'additionality' test for funding the former over and above the latter. We therefore consider how the limited public grant element so far available should best be rationed, to limit the scope for distortions. We revisit the role of the multilateral development banks' market-related windows, in view of the missing middle problem. We consider what factors underpin their secular stagnation, and how to overcome them. We summarise other specific international reform options in response to our analysis, on private sector contributions, market-related lending and climate finance. We conclude by contrasting two alternative world views: (1) making international public finance a complement to private finance everywhere, and (2) deliberately focusing public stakes where the private sector is not present. We suggest a way forward

Four Essays on Financial Markets and Sovereign Risk: How the Euro Crisis, Commodities and Climate Change affect Countries' Financing Costs

Die Dissertation untersucht verschiedene Einflussfaktoren auf die Finanzierungskosten von Staaten. Dabei werden die Eurokrise, Rohstoffpreise und Klimawandel als drei wesentliche Einflussfaktoren herangezogen und deren empirische Wichtigkeit statistisch untersucht. Ein weiterer Artikel beschäftigt sich mit der Integration von Finanzmärkten auf die Ausbreitung von Konjunkturzyklen.:Chapter 1: Introduction 1 1.1 Motivation: The Curious Case and Multiple Facets of Sovereign Debt . . . . 1 1.2 Outline and Contribution of this Thesis to the Literature . . . . . . . . . . . 6 A.1 Appendix to Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 References to Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Chapter 2: Avoiding the Fall into the Loop: Isolating the Transmission of Bank-to-Sovereign Distress in the Euro Area 19 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.2 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.3 Data Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.3.1 Deriving Country-Specific Bank Distress . . . . . . . . . . . . . . . . . 24 2.3.2 Instrumenting Bank Distress using Exposure-Weighted Stock Market Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.3.3 Set of Dependent and Explanatory Variables . . . . . . . . . . . . . . 30 2.3.3.1 Dependent Variable . . . . . . . . . . . . . . . . . . . . . . . 30 2.3.3.2 Control Variables . . . . . . . . . . . . . . . . . . . . . . . . 33 2.4 Empirical Specification and Results . . . . . . . . . . . . . . . . . . . . . . . . 35 2.5 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.5.1 Comparison of IV and OLS during Eurozone Crisis . . . . . . . . . . . 38 2.5.2 Alternative Versions of the Dependent Variable . . . . . . . . . . . . . 40 2.5.3 Alternative Versions for Bank Distress Variable . . . . . . . . . . . . . 41 2.5.4 Alternative Versions for Instrumental Variable . . . . . . . . . . . . . 42 2.5.5 Strengthening the Exclusion Restriction of the Instrument . . . . . . . 46 2.5.6 Weekly Frequency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 2.5.7 Alternative Control Variables and Time Fixed Effects . . . . . . . . . 49 2.5.8 Wild Cluster Bootstrapping . . . . . . . . . . . . . . . . . . . . . . . . 52 2.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 A.2 Appendix to Chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 A.2.1 Drivers of Bank-to-Sovereign Distress Transmissions . . . . . . . . . . 54 A.2.1.1 Macroeconomic Performance . . . . . . . . . . . . . . . . . . 57 A.2.1.2 Government Bond Issuances, Redemptions and Holdings . . 62 A.2.1.3 Banking Sector Structure and Stability . . . . . . . . . . . . 66 A.2.1.4 Political Stability . . . . . . . . . . . . . . . . . . . . . . . . 72 A.2.2 Additional Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . 77 References to Chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Chapter 3: What drives the Commodity-Sovereign Risk Dependence in Emerging Market Economies? 87 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 3.2 Data, Variables and Summary Statistics . . . . . . . . . . . . . . . . . . . . . 92 3.2.1 Dependent Variable: Sovereign Default Risk . . . . . . . . . . . . . . . 92 3.2.2 Deriving Country-specific Commodity Performance . . . . . . . . . . . 94 3.2.3 Set of Control Variables . . . . . . . . . . . . . . . . . . . . . . . . . . 97 3.3 Empirical Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 3.3.1 Baseline Specification and Results . . . . . . . . . . . . . . . . . . . . 98 3.3.2 Alternative Specifications . . . . . . . . . . . . . . . . . . . . . . . . . 101 3.4 Drivers of the Commodity-Sovereign Risk Dependence . . . . . . . . . . . . . 104 3.4.1 Commodity-related Factors . . . . . . . . . . . . . . . . . . . . . . . . 105 3.4.2 Macroeconomic and International Factors . . . . . . . . . . . . . . . . 110 3.4.3 Policy Measures against Commodity Dependence . . . . . . . . . . . . 117 3.5 Robustness Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 3.5.1 Dropping Countries with Liquidity Issues . . . . . . . . . . . . . . . . 127 3.5.2 Alternative Specifications for EMBI and Commodity Performance . . 129 3.5.3 Alternative Control Variables . . . . . . . . . . . . . . . . . . . . . . . 130 3.5.4 Alternative Fixed Effects, Frequency, Clustering and Time Series Results131 3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 A.3 Appendix to Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 References to Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Chapter 4: Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe 145 4.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 4.2 Empirical Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 4.2.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 4.2.2 Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 4.3 Estimation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 4.3.1 Results for Overall Output Fluctuations (GDP) . . . . . . . . . . . . . 157 4.3.2 Results for Industrial Output Fluctuations . . . . . . . . . . . . . . . . 162 4.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 A.4 Appendix to Chapter 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 References to Chapter 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 Chapter 5: Physical Climate Change Risks and the Sovereign Creditworthiness of Emerging Economies 182 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 5.2 Physical Climate Change Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 5.2.1 Physical Climate Change Risk in Contrast to Transition Risk . . . . . 187 5.2.2 Physical Climate Change and Sovereign Creditworthiness . . . . . . . 189 5.3 Data and Descriptive Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 191 5.3.1 Sovereign Creditworthiness . . . . . . . . . . . . . . . . . . . . . . . . 191 5.3.2 Temperature Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 5.4 Empirical Specification and Results . . . . . . . . . . . . . . . . . . . . . . . . 195 5.5 Channels of Temperature-Sovereign Risk Connection . . . . . . . . . . . . . . 197 5.5.1 General Warmness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 5.5.2 Seasonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 5.5.3 Month and Season Effects . . . . . . . . . . . . . . . . . . . . . . . . . 205 5.5.4 Economic Sector Specialization . . . . . . . . . . . . . . . . . . . . . . 208 5.5.5 Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 5.5.6 Combining relevant Channels . . . . . . . . . . . . . . . . . . . . . . . 215 5.6 Robustness Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 5.6.1 Changing the Fixed Effects Specification . . . . . . . . . . . . . . . . . 218 5.6.2 Changing the Dependent Variable . . . . . . . . . . . . . . . . . . . . 220 5.6.3 Changing the Lag Structure . . . . . . . . . . . . . . . . . . . . . . . . 221 5.6.4 Changing the Historical Temperature Average Period . . . . . . . . . . 222 5.6.5 Dropping Countries with lower Data Coverage and larger Landmass . 226 5.6.6 Other Temperature Anomaly Measures . . . . . . . . . . . . . . . . . 227 5.6.7 Analyzing Debt Sustainability . . . . . . . . . . . . . . . . . . . . . . . 229 5.6.8 Testing for Transition Risks . . . . . . . . . . . . . . . . . . . . . . . . 229 5.6.9 Changing Economic Sector Specialization Measures . . . . . . . . . . . 231 5.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 A.5 Appendix to Chapter 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 References to Chapter 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

The Impact of Remittances on Economic Insecurity

This paper illustrates that cross-country generalizations about the impact of remittances on economic security are useful only up to a certain point; beyond that their effect can be influenced by the interplay of various factors relating to the motivations and characteristics of migrants, economic/social/political conditions in the country of origin, immigration policies and conditions in the host country, and the size and concentrations of the remittances. The policy implications outlined in the paper include the need for caution and retrospection in certain instances as well as action and international collaboration in other areas.remittances, macroeconomic insecurity, consumption, poverty, income distribution, savings, investment, incentives

Restoring financial stability in the euro area. CEPS Policy Brief No. 237, 15 March 2011

The pricing of sovereign credit risk is a necessary component of the financial architecture of the European Monetary Union. However, unnecessarily high and volatile risk premia on government bonds are currently preventing effective financial intermediation within the euro area, thereby inhibiting its economic recovery. Several proposals have been made on how these risk premia should be brought down, namely i) permanent pooling of funding through joint bond issuance, ii) temporary liquidity assistance through multilateral funds, iii) debt buybacks using multilateral funds, and iv) debt restructuring. This paper attempts to evaluate these four proposals. It argues that joint bond issuance will not achieve a meaningful reduction of liquidity premia in the sovereign bond market; these instruments would either create perverse incentives or accelerate the sovereign debt crisis for peripheral Europe. An institution to provide temporary liquidity assistance is a necessary addition to the institutional framework of EMU – there needs to be an EMF to complement the ECB. Debt buybacks using multilateral funds can be a very useful tool for solvent countries such as Spain; they can prevent an overshooting of risk premia that could turn a sovereign liquidity crisis into a solvency crisis. A quantitative assessment shows that debt buybacks at market prices are insufficient to correct Greece’s debt overhang, however. In the case of Greece, a voluntary exchange of existing government bonds into new obligations, complemented by a buyback option at a steep discount to face value, could restore sovereign creditworthiness and allow the private sector to regain market access at acceptable interest rates. In the absence of such an orderly and controlled reduction of public debt, highly indebted euro area governments will likely opt to restructure their sovereign debt unilaterally, if they fail to regain market access after several years. This could have unwelcome consequences for financial stability in the euro area, which should be avoided through a creative and cooperative approach to the problem

Transaction Banking: Respecting its role in the real economy. ECRI Policy Brief No. 6, 6 December 2013

This paper sketches the main features and issues related to recent market developments in global transaction banking (GTB), particularly in trade finance, cash management and correspondent banking. It describes the basic functioning of the GTB, its interaction with global financial markets and related implications of global regulatory developments such as Basel III. The interest in GTB has recently increased, since its low-risk profile, tendency to follow growth rates worldwide and relative independence from other financial instruments became an interesting diversification opportunity both for banks’ business models and for investors. Transaction banking has been a resilient business during the crisis, despite the reduction in world trade figures. In the post crisis period, GTB must cope with new challenges related to increased local and global regulation and the risk of inconsistency in regulatory approaches, which could negatively impact the global network and increased competition by new market entrants. Increased sophistication of corporate clients, as well as the pressure to develop and adopt technological innovations more quickly than other areas of banking continues to impact the business. The future of the industry closely depends on its ability to adjust to complex regulatory developments while at the same time being able to operate a global and efficient network

Climate Vulnerability and the Cost of Debt

We use indices from the Notre Dame Global Adaptation Initiative to investigate the impact of climate vulnerability on bond yields. Our methodology invokes panel ordinary least squares with robust standard errors and principal component analysis. The latter serves to address the multicollinearity between a set of vulnerability measures. We find that countries with higher exposure to climate vulnerability, such as the member countries of the V20 climate vulnerable forum, exhibit 1.174 percent higher cost of debt on average. This effect is significant after accounting for a set of macroeconomic controls. Specifically, we estimate the incremental debt cost due to higher climate vulnerability, for the V20 countries, to have exceeded USD 62 billion over the last ten years. In other words, for every ten dollars they pay in interest cost, they pay another dollar for being climate vulnerable. We also find that a measure of social readiness, which includes education and infrastructure, has a negative and significant effect on bond yields, implying that social and physical investments can mitigate climate risk related debt costs and help to stabilize the cost of debt for vulnerable countries

Climate Change and Fiscal Sustainability: Risks and Opportunities

Both the physical and transition-related impacts of climate change pose substantial macroeconomic risks. Yet, markets still lack credible estimates of how climate change will affect debt sustainability, sovereign creditworthiness, and the public finances of major economies. We present a taxonomy for tracing the physical and transition impacts of climate change through to impacts on sovereign risk. We then apply the taxonomy to the UK's potential transition to net zero. Meeting internationally agreed climate targets will require an unprecedented structural transformation of the global economy over the next two or three decades. The changing landscape of risks warrants new risk management and hedging strategies to contain climate risk and minimise the impact of asset stranding and asset devaluation. Yet, conditional on action being taken early, the opportunities from managing a net zero transition would substantially outweigh the costs

Banking in Central and Eastern Europe and Turkey: Challenges and opportunities

This publication discusses the challenges and opportunities for the banking sectors in CEE countries and Turkey that arose after the financial crisis in 2007 and the on-going tensions on European sovereign debt markets. Its aim is to take stock of the views of commercial banks, the regulators and IFIs. It is also a useful reference text on banking in the region