Research
Working papers and work in progress
Gourdel
Abstract:
The role of banks in supporting the low-carbon transition has proved controversial as they have priced climate transition risk but maintained investment in polluting industries. This paper provides first a theoretical benchmark for the carbon premium, based on a formalization of the concept of climate sentiments, the policy-dependent present value of firms’ capital, and the Merton model. I find that the current empirical evidence for carbon premia matches a reasonable calibration of investment dynamics in productive capital, with a limited space for higher premia even when banks strongly expect future climate-mitigation policies. Second, I consider discrepancies in climate sentiments between lenders and borrowers, to determine when banks could push reticent borrowers to green their operations, or prevent them from doing so. I find that variations in the cost of debt due to the carbon premium are generally not enough of a decarbonization incentive alone. Macro-prudential measures that complement carbon pricing and policies that limit the lending volume would then be necessary to decarbonize the economy further through the financial system.
Presentations at conferences:
- 2nd European Sustainable Finance PhD Workshop - University of Augsburg, 2024
- Annual Meeting of the Austrian Economic Association “Transition to a low carbon economy” - BOKU University, Vienna, 2024
- 2024 International Symposium on Climate, Finance, and Sustainability (ISCFS-2024) - Université Dauphine, Paris
- 8th Sustainable and Impact Investments International Conference - University College Dublin, 2025
- 🥉 Recipient of the third-best paper award
- The Second International Conference on the Climate-Macro-Finance Interface: New Environmental Challenges for Monetary, Fiscal, and Macroprudential Policy - Bayes Business School, London, 2025
- 18th RGS Doctoral Conference in Economics - TU Dortmund, 2025
Suggested bibtex citation:
Gourdel
Abstract:
Financial networks with granular portfolio information have become a staple of the academic and regulatory literature, with financial interlinkages recognised for their importance in financial stability. However, in application, network-based methods present inherent flaws that are seldom addressed. This includes an unequal data coverage, an insufficient estimation of uncertainty around the results, or unrealistic simulations of alternative and future states of these networks. The latter point is especially important for climate changerelated simulations, where the evolution of portfolios is key in assessing the likely impact of future shocks. Building on previous data completion techniques, this paper designs a framework to perform Bayesian sampling of financial networks, and allows for data augmentation when the network can be partially recovered at some points in time. This contributes to addressing the uncertainty issues currently observed and allows determination by experts of stronger priors that can help the model perform better in stress testing future states of the network.
Presentations at conferences:
- International Conference on Computational and Financial Econometrics - London, 2022
Gourdel and Monasterolo, technical paper for the Task Force on Climate, Development and the IMF
Abstract:
Barbados is a country highly exposed to climate physical risks and to transition risks, where the latter could emerge as a result of a domestic disorderly transition, and from the introduction of climate policies by trading partners. Nevertheless, we still know little about the implications of climate scenarios on sovereign fiscal and financial stability. We contribute to filling this gap by studying the macroeconomic and public finance impacts of climate risks. It includes transition spillover risk, driven by the introduction of climate policies globally, which decrease international tourist arrivals to curb CO2 emissions from flights, coherently with transition scenarios for aviation. It also accounts for chronic and acute physical climate risks, with the latter given by a country-specific model for tropical cyclones, calibrated on past meteorological data from the Caribbean region. To conduct our analysis, we tailor the EIRIN Stock-Flow Consistent behavioral model, and we calibrate it to the Barbadian economy. First, we find a potentially significant reduction of the Barbadian GDP due to transition spillover risk: up to 37.6% less in 2050, as a deviation from a business-as-usual path of touristic inflows. This further harms the debt-to-GDP ratio and debt sustainability. Second, implementing domestic climate policies may decrease GHG emissions by up to 75%. Importantly, the economic costs of decarbonization are smaller than the costs of unabated climate change. The results suggest that mitigating climate risks would benefit from economic diversification and from tailored financial instruments.
Presentations at conferences:
- 5th JRC Summer School on Sustainable Finance – Ispra, 2023
- CREDIT 2023 Conference, “Social, Sovereign and Geopolitical Risks” - Venice
- EAEPE 2023 Annual Conference
Suggested bibtex citation:
@techreport{gourdel2022barbados,
author = {Gourdel, Régis and Monasterolo, Irene},
institution = {Task Force on Climate, Development and the IMF},
title = {Climate Physical Risk, Transition Spillovers and Fiscal Stability: an application to Barbados},
type = {Working Paper},
year = 2022,
url = {https://www.bu.edu/gdp/2022/10/05/climate-physical-risk-transition-spillovers-and-fiscal-stability-an-application-to-barbados/}
}Gourdel, Maqui and Sydow, ECB working paper No. 2323, DOI: 10.2866/990022
Abstract:
This paper presents a framework for stress testing investment funds, based on a broad worldwide sample of primary open-end funds. First, we employ a Bayesian technique to project the impact of macro-financial scenarios on country-level portfolio flows worldwide that are constructed from fund-level asset holdings. Second, from these projected country-level flows, we model the scenarios’ repercussions on individual funds along a three year horizon. The model is applied to exogenous shocks from the COVID-19 crisis and its projections, as well as to a EU-wide stress test scenario resembling the global financial crisis (GFC). Our findings indicate that the impact of an adverse macro-financial scenario leads to median drops in assets under management (AUM) of 24% and 5%, for EA12-domiciled equity and bond funds respectively, within the first quarter of the projection horizon. Moreover, we use historical information on fund liquidations to estimate a threshold for a drop in AUM that signals a high likelihood of a forthcoming fund liquidation, which can be useful for the implementation of prudential policy tools in the investment fund sector, such as redemption gates. Our empirical exercise results on a ratio of liquidations of 5.8% for equity funds (4.6% in terms of liquidated assets), compared to bond funds where the ratio of fund liquidations is limited to 0.5% (0.1% in terms of liquidated assets) under an adverse scenario.
Presentations at conferences:
- Paris Financial Management Conference - 2019
Media coverage:
Suggested bibtex citation:
Journal publications
Gourdel, Monasterolo and Gallagher
- Research conducted for the Task Force on Climate, Development and the IMF
- Working paper version
Abstract:
We analyse the impacts of climate transition spillover risk on fiscal sustainability and sovereign risk in Indonesia. Spillover risk emerges from the introduction of energy decarbonization policies by Indonesia’s main trading partners, such as China. Spillover risk is modelled as a demand shock for Indonesia’s fossil fuels that affects its export to China, building on the Network for Greening the Financial System’s scenarios. By tailoring the EIRIN Stock-Flow Consistent model, we quantify the impact of spillover risk on the Indonesian economy, including on the fiscal and financial dimensions. We find that spillover risk weakens the Indonesian balance of payment, leading to indirect and cascading effects on public finance and public debt, which increases by up to 12 percent of GDP by 2050. Thus, as potential trade-offs between energy decarbonization and sovereign financial stability could emerge, along with the materialization of carbon-stranded assets. Our results highlight the importance to include spillover risks in the climate financial risk monitoring and assessment of national and international supervisory authorities and programs (e.g. the Debt Sustainability Assessments and Financial Stability Assessment Programmes of the International Monetary Fund) in order to design effective climate policies.
Presentations at conferences:
- 34th annual EAEPE conference - Naples, 2022
- SEEDS 2023 workshop - Ferrara
- 9th International Symposium on Environment and Energy Finance Issues (ISEFI-2023) – Paris
- PIK “Cross-border climate change impacts and systemic risks in Europe and beyond” - Potsdam, 2023
Suggested bibtex citation:
Gourdel, Monasterolo, Dunz, Mazzocchetti and Parisi, DOI: 10.1016/j.jfs.2024.101233
- Working paper version, ECB working paper No. 2665
- SUERF Policy Brief, No 436
Abstract:
We analyse the double materiality of climate physical and transition risks in the euro area economy and banking sector. First, by tailoring the EIRIN Stock-Flow Consistent behavioural model, we provide a dynamic balance sheet assessment of the Network for Greening the Financial System (NGFS) scenarios. We find that an orderly transition achieves early co-benefits by reducing CO2 emissions (12% less in 2040 than in 2020) while supporting growth in economic output. In contrast, a disorderly transition worsens the economic performance and financial stability of the euro area. Further, in a disorderly transition with higher physical risks, real GDP decreases by 12.5% in 2050 relative to an orderly transition. Second, we analyse how firms’ expectations about climate policy credibility (climate sentiments) affect investment decisions in high or low-carbon goods. Firms that trust an orderly policy introduction do anticipate the carbon tax and switch earlier to low-carbon investments. This, in turn, accelerates economic decarbonization and decreases the risk of carbon-stranded assets for investors. Our results highlight the crucial role of early and credible climate policies to signal investment decisions in the low-carbon transition.
Presentations at conferences:
- 33rd annual EAEPE conference - 2021
- 14th ESEE Conference - Pisa, 2022
Suggested bibtex citation:
@article{gourdel2024double,
title = {The double materiality of climate physical and transition risks in the euro area},
author = {Gourdel, Régis and Monasterolo, Irene and Dunz, Nepomuk
and Mazzocchetti, Andrea and Parisi, Laura},
journal = {Journal of Financial Stability},
volume = 71,
pages = {101233},
year = 2024,
publisher = {Elsevier},
doi = {10.1016/j.jfs.2024.101233}
}Sydow et al., DOI: 10.1016/j.jfs.2024.101234
Working paper version: ECB working paper No. 2581
Abstract:
This paper shows how the combined endogenous reaction of banks and investment funds to an exogenous shock can amplify or dampen losses to the financial system compared to results from single-sector stress testing models. We build a new model of contagion propagation using a very large and granular data set for the euro area. Based on the economic shock caused by the Covid-19 outbreak, we model three sources of exogenous shocks: a default shock, a market shock and a redemption shock. Our contagion mechanism operates through a dual channel of liquidity and solvency risk. Our analysis reveals that adding the fund sector to our model for banks leads to additional losses through fire sales and a further depletion of banks’ capital ratios by around one percentage point. The main driver of additional bank losses are endogenous market losses generated by investment funds’ asset liquidation.
Suggested bibtex citation:
@article{sydow2024shock,
title = {Shock amplification in an interconnected financial system of banks and investment funds},
journal = {Journal of Financial Stability},
volume = 71,
pages = 101234,
year = 2024,
issn = {1572-3089},
doi = {10.1016/j.jfs.2024.101234},
author = {Sydow, Matthias and Schilte, Aurore and Covi, Giovanni
and Deipenbrock, Marija and Del Vecchio, Leonardo and Fiedor, Pawel
and Fukker, Gábor and Gehrend, Max and Gourdel, Régis
and Grassi, Alberto and Hilberg, Björn and Kaijser, Michiel
and Kaoudis, Georgios and Mingarelli, Luca and Montagna, Mattia
and Piquard, Thibaut and Salakhova, Dilyara and Tente, Natalia},
}Gourdel and Sydow, DOI: 10.1016/j.irfa.2023.102739
- Working paper version, ECB working paper No. 2757
- Summary box Dual risk in investment fund climate stress testing in The macroprudential challenge of climate change, by the ECB/ESRB Project Team on climate risk monitoring. European Central Bank and European Systemic Risk Board.
- 🥇 Recipient of the best paper award at the Sustainable and Socially Responsible Finance Conference
Abstract:
This paper develops a framework for the short-term modelling of market risk and shock propagation in the investment funds sector, including bi-layer contagion effects through funds’ cross-holdings and overlapping exposures. Our work tackles chiefly climate risk, with a first-of-its-kind dual view of transition and physical climate risk exposures at the fund level. So far, while fund managers communicate more aggressively about their awareness of climate risk, it is still poorly assessed. Our analysis shows that the topology of the fund network matters and that both contagion channels are critical in its study. A stress test based on granular short-term transition shocks suggests that the differentiated integration of sustainability information by funds has made network amplification less likely, although first-round losses can be material. On the other hand, there is room for fund managers and regulators to consider physical risk better, and mitigate the second-round effects it induces, as these are less efficiently absorbed by investment funds. Improving transparency and setting relevant industry standards in this context would help mitigate short-term financial stability risks.
Presentations at conferences:
- Sustainable Macro conference “Steering Financial Markets in the Sustainable Transition”
- Sustainable and Socially Responsible Finance Conference - Forlì, 2022
Suggested bibtex citation:
@article{gourdel2023nonbanks,
title = {Non-banks contagion and the uneven mitigation of climate risk},
journal = {International Review of Financial Analysis},
volume = 89,
pages = 102739,
year = 2023,
issn = {1057-5219},
doi = {10.1016/j.irfa.2023.102739},
author = {Gourdel, Régis and Sydow, Matthias},
}Monasterolo et al., DOI: 10.1007/s43253-021-00062-3
Abstract:
The role of climate finance policies and instruments in scaling up and derisking low-carbon investments has received growing research attention. However, financial actors’ reaction to climate finance initiatives, and their implications on decarbonization of the economy and on inequality, has not been assessed yet. Our manuscript contributes to address this knowledge gap by analysing under which conditions government’s climate finance policies and investors’ climate risk adjustment can affect the success of the low-carbon transition and the ability to close the green investment gap. We further develop the EIRIN Stock-Flow Consistent behavioural model with a financial market, an energy market and investors’ portfolio choice of financial contracts, for the European Union. First, we study the macroeconomic impacts of government’s green subsidies that can be financed either by introducing an unanticipated carbon tax or by issuing green sovereign bonds. Then, we assess how investors adjust firms’ risk assessment in reaction to the carbon tax introduction, and how this affects firms’ low-carbon investment decisions. We find that both a carbon tax and green bonds financing can give rise to trade-offs in terms of decarbonization of the economy (absolute emission reductions), distributive effects and public debt sustainability. The channels of transmission differ and are policy and instrument specific. Green subsidies that are financed by green sovereign bonds issuance generate positive spillovers on GDP growth and less distributive effects than a carbon tax. Nevertheless, due to the relative decoupling of the economy, GDP growth impairs emission reduction efforts. Finally, investors’ climate risk adjustment helps to smooth this trade-off, contributing to a full decoupling.
Suggested bibtex citation:
@article{monasterolo2022derisking,
title = {Derisking the low-carbon transition: investors' reaction to climate policies, decarbonization and distributive effects},
author = {Monasterolo, Irene and Dunz, Nepomuk
and Mazzocchetti, Andrea and Gourdel, Régis},
journal = {Review of Evolutionary Political Economy},
volume = 3,
number = 1,
pages = {31--71},
year = 2022,
publisher = {Springer},
doi = {10.1007/s43253-021-00062-3}
}Other publications and policy reports
The European Supervisory Authorities and the European Central Bank
Suggested bibtex citation:
@report{esas2024fit,
shortauthor = {{ESAs and ECB}},
author = {{The European Supervisory Authorities and the European Central Bank}},
title = {Fit-for-55 climate scenario analysis},
year = 2024,
url = {https://www.ecb.europa.eu/pub/pdf/other/ecb.report_fit-for-55_stress_test_exercise~7fec18f3a8.en.pdf}
}Bhandary et al., T20 Policy Brief
Suggested bibtex citation:
@techreport{bhandary2023addressing,
author = {Bhandary, Rishikesh Ram and Gourdel, Régis and He, Xiaobei and Merling, Lara and Monasterolo, Irene},
title = {Addressing cross-border spillover risks of climate transition policies: the role of the {G20} and {IMF}},
institution = {G20 and T20 India 2023},
year = 2023,
type = {T20 Policy Brief},
url = {https://t20ind.org/research/addressing-cross-border-spillover-risks-of-climate-transition-policies/}
}Gourdel, in Climate Policy and Green Finance (Quarterly Update) 4, Peking University.
Suggested bibtex citation:
@article{gourdel2023fake,
author = {Gourdel, Régis},
title = {Fake it till you green it: climate risk, commitments and regulation for non-banks},
journal = {Climate Policy and Green Finance (Quarterly Update)},
year = 2023,
publisher = {Peking University},
volume = 4,
url = {https://mgflab.nsd.pku.edu.cn/en/InsightsUpdates/MGFInsights/d9c68f10b5384dc297fad221e2a12bff.htm}
}Task Force on Climate, Development and the IMF (R. R. Bhandary & M. Uy, Eds.)
Suggested bibtex citation:
@report{bhandary2023imf,
author = {{Task Force on Climate, Development and the IMF}},
editor = {Bhandary, Rishikesh Ram and Uy, Marilou},
title = {The International Monetary Fund, Climate Change and Development: A Preliminary Assessment},
url = {https://www.bu.edu/gdp/2023/03/24/the-international-monetary-fund-climate-and-development-a-preliminary-assessment/},
year = 2023
}Cera et al., in ECB Financial Stability Review Issue 1
- URL: www.ecb.europa.eu/pub/financial-stability/fsr/focus/2020/html/ecb.fsrbox202005_06~5321e041b0.en.html
Suggested bibtex citation:
@incollection{cera2020role,
author = {Cera, Katharina and Giuzio, Margherita and Gourdel, Régis and Grassi, Alberto and Kördel, Simon and Metzler, Julian},
title = {The role of bank and non-bank interconnections in amplifying recent financial contagion},
booktitle = {Financial Stability Review},
publisher = {European Central Bank},
year = 2020,
month = 5,
url = {https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/2020/html/ecb.fsrbox202005_06~5321e041b0.en.html}
}