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The report explains how severe weather shocks propagate through supply, demand, and financial channels, initially affecting production determinants such as capital, labour, and total factor productivity. It also covers demand impacts via wealth, expectations, confidence, and insurance, and financial transmission through asset prices and credit. 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The frequency and severity of extreme weather events resulting from rising temperatures has increased markedly. Annual global damages from weather-related hazards have more than doubledin real terms in the past twenty years, reaching 275 billion USD in 20221.  \nCentral banks, therefore, need to assess and understand the economic impact of climate change. In the 2022 NGFS survey, central banks expressed a desire to deepen their understanding of these effects.  \nThis report presents the channels through which the physical impacts of climate change may affect the economy. It provides monetary policymakers with a framework to evaluate the implications for key macroeconomic variables that are relevant for their decision-making.  \nPhysical effects of climate change will affect both the demand and supply side of the economy, which can be amplified through financial channels. These impacts can alter the path of output and inflation in the short-run, which means that they are a relevant consideration for monetary policymakers in the context of their price stability mandates.  \nThis publication is one ofa suite of reports being published by the NGFS Workstream on Monetary Policy. They aim to support central banks in assessing and understanding the macroeconomic effects of climate change as well as potential implications for the conduct of monetary policy. While this report focuses on physical impacts, the two reports that will follow cover the influence of the green transition on the economy, and central banks’ approaches to modelling the effects of climate change.  \nWe are, as ever, grateful to the NGFS members and observers as well as the NGFS Secretariat for contributing to this work. Given the increase in the frequency and severity of extreme weather events resulting from climate change, we hope this publication contributes to deepening the understanding of the macroeconomic impacts of these shocks and in turn their implications for monetary policy.  \n1 Banerjee et al. (2023) .  \nForeword 2  \nExecutive summary 5  \nIntroduction 7  \n1. From severe weather events to physical risks and disasters 9  \n1.1 Acute physical risk 9  \n1.2 Types of physical hazards and their distribution 10  \nBox 1 Data and methods 12  \n2. Propagation of physical hazards: supply, demand,  \nand financial channels 14  \n2.1 Supply channels 15  \n2.1.1 Destruction of physical goods, capital, and infrastructure 15  \n2.1.2 Labour 16  \n2.1.3 Total factor productivity 17  \nBox 2 Heatwaves in Egypt 18  \n2.1.4 Public financing conditions 19  \n2.2 Demand channels 20  \n2.2.1 Wealth and income 20  \n2.2.2 Expectations 20  \n2.2.3 Confidence 21  \n2.2.4 Insurance 21  \nBox 3 The insurance challenge 22  \n2.3 Financial channels 23  \n2.3.1 Asset prices and credit conditions 23  \n2.3.2 Credit volume 24  \nBox 4 Reserve Bank of New Zealand response to the Canterbury Earthquakes 25  \n3. Aggregate effects and monetary policy 27  \n3.1 Impact on GDP 27  \nBox 5 The Federal Reserve’s forecast after Hurricane Katrina 28  \n3.2 Impact on inflation 30  \n3.3 Implications for monetary policy 31  \nBox 6 Modelling the aggregate economic effects from physical hazards 32  \nConclusion 34  \nReferences 35  \nAcknowledgements 44  \nExecutive summary  \nAs severe weather events (acute physical hazards) intensify, become more frequent and more geographically widespread with progressing climate change, so too will their macroeconomic effects, at both the monetary policy horizon, and in the longer run. Annual global direct damages from these weather-related hazards have more than doubledin real terms from the early 2000sand reached 275","cbCaif7tQlOqkfBT","https://ap.wps.com/l/cbCaif7tQlOqkfBT","pdf",780072,45,"English","# Foreword\n# Executive summary\n# Introduction\n# 1. From severe weather events to physical risks and disasters\n## 1.1 Acute physical risk\n## 1.2 Types of physical hazards and their distribution\n# 2. Propagation of physical hazards: supply, demand, and financial channels\n## 2.1 Supply channels\n## 2.2 Demand channels\n## 2.3 Financial channels\n# 3. Aggregate effects and monetary policy\n## 3.1 Impact on GDP\n## 3.2 Impact on inflation\n## 3.3 Implications for monetary policy\n# Conclusion\n# References\n# Acknowledgements","[{\"question\":\"What does the report consider as acute physical risks from climate change?\",\"answer\":\"It focuses on severe weather events that intensify, become more frequent, and spread more geographically over time. These acute physical hazards trigger macroeconomic effects.\"},{\"question\":\"How do physical hazards affect the economy according to the report?\",\"answer\":\"The report explains propagation through supply, demand, and financial channels. Supply impacts production determinants, demand impacts spending via wealth, expectations, and confidence, and financial channels transmit effects through asset prices and credit conditions.\"},{\"question\":\"Why are insurance and financial conditions important for recovery after disasters?\",\"answer\":\"Effective insurance with fast and predictable payouts can limit economic fallout and speed recovery. Meanwhile, tighter financial conditions and reduced access to finance can slow recovery and create spillovers, while weaker collateral and bank balance sheets worsen the situation.\"}]","Acute physical impacts from climate change and monetary policy - NGFS Workstream on Monetary Policy | PDF",113]