Confirmation of Candidature - Climate Change and its Impact on Financial Stability: An Empirical Evidence From Australia

Climate change, leading to global warming, has emerged as the paramount challenge of our era, characterized by complex and evolving dynamics. Academics, policymakers, and financial institutions are increasingly concerned about the effects of climate-related risks on financial stability. Despite the intricate and not fully understood nature of physical and transition risks associated with climate change, countries have implemented various actions and policies to prioritize financial stability in the face of these risks. This study aims to investigate the impact of climate change on financial stability in Australia, addressing the existing knowledge gap within the Australian economy. Additionally, the research will analyze how physical and transition risks related to climate change affect financial stability and explore the asymmetric and non-linear relationship between climate change and financial stability in Australia. By utilizing ARDL and NARDL techniques, the study will assess both the short-term and long-term influences of climate change on macroeconomic stability. The study will further examine the symmetric and asymmetric relationships between climate change and financial stability. For a comprehensive understanding of financial stability, Bank Z-score, Bank nonperforming loans to gross loans (%), Bank capital to total assets (%), Bank credit to bank deposits (%), Bank regulatory capital to risk-weighted assets (%), Liquid assets to deposits and short-term funding (%), Provisions to nonperforming loans (%), rate of inflation, exchange rate fluctuations and Stock price volatility will be used as a proxy. Besides, the GHG emission per capita and temperature will be used as a proxy to estimate transition risk and physical risk of climate change accordingly. Given the existing research demonstrating that climate change impacts financial stability, our study anticipates that both in the short and long term, climate change will adversely affect financial stability in developed countries. The findings will offer a framework for policymakers to develop and implement policies focused on climate change. This will help establish national targets for financial stability and serve as a model for policymakers in other developed countries to adopt suitable policies for financial and macroeconomic stability.

For more information, please email the Graduate Research School or phone 0746 311088.