Climate Risk and Commodity Currencies
49 Pages Posted: 28 Dec 2020
Date Written: 2020
The positive relationship between real exchange rates and natural resource income is well understood and studied. However, climate change and the transition to a lower-carbon economy now challenges this relationship. We document this by proposing a novel news media-based measure of climate change transition risk and show that when such risk is high, major commodity currencies experience a persistent depreciation and the relationship between commodity price fluctuations and currencies tends to become weaker.
JEL Classification: C110, C530, D830, D840, E130, E310, E370
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