Compound risks: combining COVID and climate shocks in macroeconomic models for stronger financial resilience

OVERVIEW

The combined impact of the COVID-19 pandemic and climate shocks creates unprecedented social, economic and financial challenges for developed and emerging countries. Macroeconomic and macro-financial models have started to include climate change in their (country) forecasts and in their simulations of policy reforms. The COVID-19 crisis cannot be ignored but its economic and financial impact as well as its interactions with climate shocks are still to be developed in such macro modeling.

The Compound Risk Analytics project, led by the World Bank’s Disaster Risk Financing and Insurance Program (DRFIP) with support from the Ca’ Foscari University of Venice, aims to increase understanding of how the COVID-19 health crisis, and the resulting economic and financial impacts, can be expected to interplay with natural hazards. The project aims (i) to map the interactions and transmission pathways of compound health and weather-related crisis in economic terms, at household, firm and macro-level; and (ii) provide preliminary analyses for selected countries.

The webinar will also be an opportunity to review some initial results and discuss challenges and opportunities of more applied research in the area of financial preparedness in developing countries.

WHAT WILL YOU LEARN?

In this event, some of the questions to be addressed include:

• What is the key difference here from compounding risks that might be considered elsewhere, e.g. economic/financial stress tests? Are there implications for the way we think about stress-testing scenarios?
• What does this mean for the way we think about fiscal risk management? And the way we think about financial protection strategies? Can this be a helpful tool in helping us consider better how to design risk management strategies?
• How are we thinking about compound risks in a climate change context and how can this type of analysis help us better address financial preparedness?