Norges Bank

Working Paper

Climate risk and commodity currencies

Author:
Felix Kapfhammer, Vegard H. Larsen and Leif Anders Thorsrud
Series:
Working Paper
Number:
18/2020

Abstract

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 1502-8190 (online)

Published 17 December 2020 14:20
Published 17 December 2020 14:20