Compounding COVID-19 and climate risks: The interplay of banks’ lending and government's policy in the shock recovery

We assess the individual and compounding impacts of COVID-19 and climate physical risks in the economy and finance, using the EIRIN Stock-Flow Consistent model. We study the interplay between banks’ lending decisions and government's policy effectiveness in the economic recovery process. We calibrate EIRIN on Mexico, being a country highly exposed to COVID-19 and hurricanes risks. By embedding financial actors and the credit market, and by endogenising investors’ expectations, EIRIN analyses the finance-economy feedbacks, providing an accurate assessment of risks and policy co-benefits. We quantify the impacts of compounding COVID-19 and hurricanes on GDP through time using a compound risk indicator. We find that procyclical lending and credit market constraints amplify the initial shocks by limiting firms’ recovery investments, thus mining the effectiveness of higher government spending. When COVID-19 and hurricanes compound, non-linear dynamics that amplify losses emerge, negatively affecting the economic recovery, banks’ financial stability and public debt sustainability

BinD: A Model of Growth, Climate Change, and Debt Sustainability

Climate change disproportionately impacts capital and output in low- and middle-income countries (LMICs). Limited fiscal space and high dependence on capital good imports further curtail their ability to make timely climate-resilient investments. In this paper we present a demand-driven model that is supply-side constrained due to insufficient build up of production capacity. Calibrating the model to Fiji, we evaluate growth pathways for three climate futures – 2C, 3C, and 4C global warming by the end of the century. We evaluate the role of a public climate fund to enable partial recovery that is financed through four different schemes - debt-led recovery, higher tax on households, higher taxes on capitalists, and unconditional grants from the rest of the world. Recovery is possible in the 2C scenario, but the 3C and 4C scenarios increasingly face higher investment costs in the face of lower growth and saving rates. In the 4C scenario, even the most generous unconditional grants scheme fails to prevent the downward spiral of hitting capacity constraints despite an initial boost to output. These insights underscore the need for effective and equitable domestic climate policies and affordable finance and compensation to support sustainable development in vulnerable countries

Building Back Better in Small Island Developing States in the Pacific: Initial Insights from the BinD Model of Disaster Risk Management Policy Options in Fiji. ADBI Working Paper 1290.

Building resilience to disasters continues to pose challenges for developing countries. Historically, small island developing states (SIDS) bordering the Pacific Ocean have suffered from multiple hazards, such as earthquakes, coastal erosion, floods, and cyclones. Population increase, uneven progress in socioeconomic development, and the ongoing environmental degradation, including climate change, have exaggerated their vulnerability to disasters. At the same time, the recent COVID-19 global pandemic has shown that the small, remote, and less-diversified economies of SIDS are particularly prone to additional external shocks. Events such as COVID-19, in combination with disasters resulting from natural hazards, pose additional challenges for resource-constrained economies’ recovery. However, the existing literature has rarely evaluated such interactions. This study hence provides initial insights into the interaction of alternative DRM policies in the presence of additional demand-side constraints, which we evaluated through the recently developed binary constrained disaster (BinD) model. Our results indicate that a targeted increase of government spending in times of crisis could be beneficial for the economic recovery of Fiji. However, short-term trade-offs emerged with respect to financing options. Debt-financed recovery allows a faster and less painful recovery but requires quick and preferential access to foreign borrowing. Tax-financed recovery can compensate for short-term foreign borrowing needs but comes at the cost of more detrimental impacts on the GDP and private sector consumption

Climate Sentiments, Transition Risk, and Financial Stability in a Stock-Flow Consistent Model

A successful low-carbon transition requires the introduction of policies aimed at aligning investments to the climate and sustainability targets. In this regard, a global Carbon Tax (CT) and a revision of the microprudential banking framework via a Green Supporting Factor (GSF) have been advocated but two main knowledge gaps remain. First, the understanding of the conditions under which the CT or the GSF could contribute to the scaling-up of new green investments or, in contrast, could introduce new sources of risk for macroeconomic and financial stability, is poor. Second, we don’t know how banks’ climatesentiments, i.e. their anticipation of climate policies’ impact in lending conditions, could affect the outcomes of the policies and of the low-carbon transition. To fill these knowledge gaps we develop a Stock-Flow Consistent model of a high income country that embeds an adaptive forecasting function of banks’ climate sentiments. Then, we assess the impact of the CT and GSF on the greening of the economy and on the banking sector analyzing the risk transmission channels from the credit market to the economy via loans contracts, and the reinforcing feedbacks that could give rise to cascading effects. Our results suggest that the GSF contributes to scale up green investments only the in short-run but it also introduces potential trade-offs on bank’s financial stability. To foster the low-carbon transition while preventing unintended effects on Non-Performing Loans and households’ budget, the introduction of the CT should be complemented with redistribution welfare policies. Finally, if banks revise their credit supply conditions based on the firms’ carbon profile ahead of climate policy introduction, they can contribute to align investments to the low-carbon transition and improve financial stability of the banking sector

Compounding COVID-19 and climate risks: The interplay of banks\u2019 lending and government's policy in the shock recovery

We assess the individual and compounding impacts of COVID-19 and climate physical risks in the economy and finance, using the EIRIN Stock-Flow Consistent model. We study the interplay between banks\u2019 lending decisions and government's policy effectiveness in the economic recovery process. We calibrate EIRIN on Mexico, being a country highly exposed to COVID-19 and hurricanes risks. By embedding financial actors and the credit market, and by endogenising investors\u2019 expectations, EIRIN analyses the finance-economy feedbacks, providing an accurate assessment of risks and policy co-benefits. We quantify the impacts of compounding COVID-19 and hurricanes on GDP through time using a compound risk indicator. We find that procyclical lending and credit market constraints amplify the initial shocks by limiting firms\u2019 recovery investments, thus mining the effectiveness of higher government spending. When COVID-19 and hurricanes compound, non-linear dynamics that amplify losses emerge, negatively affecting the economic recovery, banks\u2019 financial stability and public debt sustainability

Comprehensive DNA barcoding of the herpetofauna of Germany

We present the first comprehensive DNA barcoding study of German reptiles and amphibians representing likewise the first on the European herpetofauna. A total of 248 barcodes for all native species and subspecies in the country and a few additional taxa were obtained in the framework of the projects ‘Barcoding Fauna Bavarica’ (BFB) and ‘German Barcode of Life’ (GBOL). In contrast to many invertebrate groups, the success rate of the identification of mitochondrial lineages representing species via DNA barcode was almost 100% because no cases of Barcode Index Number (BIN) sharing were detected within German native reptiles and amphibians. However, as expected, a reliable identification of the hybridogenetic species complex in the frog genus Pelophylax was not possible. Deep conspecific lineages resulting in the identification of more than one BIN were found in Lissotriton vulgaris, Natrix natrix and the hybridogenetic Pelophylax complex. A high variety of lineages with different BINs was also found in the barcodes of wall lizards (Podarcis muralis), confirming the existence of many introduced lineages and the frequent occurrence of multiple introductions. Besides the reliable species identification of all life stages and even of tissue remains, our study highlights other potential applications of DNA barcoding concerning German amphibians and reptiles, such as the detection of allochthonous lineages, monitoring of gene flow and also noninvasive sampling via environmental DNA. DNA barcoding based on COI has now proven to be a reliable and efficient tool for studying most amphibians and reptiles as it is already for many other organism groups in zoology.The Bavarian Ministry of Education and Culture, Sciences and Arts and the German Federal Ministry of Education and Research are acknowledged for funding the barcoding campaigns in Bavaria and Germany.Peer reviewe

Effects of field annealing on MnN/CoFeB exchange bias systems

Quarterman P, Hallsteinsen I, Dunz M, et al. Effects of field annealing on MnN/CoFeB exchange bias systems. PHYSICAL REVIEW MATERIALS. 2019;3(6): 064413.We report the effects of nitrogen diffusion on exchange bias in MnN/CoFeB heterostructures as a function of MnN thickness and field-annealing temperature. We find that competing effects occur in which high-temperature annealing enhances exchange bias in heterostructures with thick MnN through improved crystallinity, but in thinner samples this annealing ultimately eliminates the exchange bias due to nitrogen deficiency. Using polarized neutron reflectometry and magnetic x-ray spectroscopy, we directly observe increasing amounts of nitrogen migration from MnN into the underlying Ta seed layer with increased annealing temperature. In heterostructures with thin MnN layers, the resulting nitrogen deficiency becomes significant enough to alter the antiferromagnetic state before the Ta seed layer is nitrogen saturated. Furthermore, we observe intermixing at the MnN/CoFeB interface which is attributed to the nitrogen deficiency creating vacancies in the MnN layer after annealing in a field. This intermixing of Mn with Co and Fe is not believed to be the cause for loss of exchange bias when the MnN layer is too thin but is instead a secondary effect due to increased vacancies after nitrogen migration