Climate risk and commodity currencies
- Felix Kapfhammer, Vegard H. Larsen and Leif Anders Thorsrud
- Working Paper
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.
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ISSN 1502-8143 (online)