Working Paper

Climate Risk and Commodity Currencies

Felix Kapfhammer, Vegard H. Larsen, Leif Anders Thorsrud
CESifo, Munich, 2020

CESifo Working Paper No. 8788

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.

CESifo Category
Monetary Policy and International Finance
Energy and Climate Economics
Keywords: exchange rates, climate, risk, commodities
JEL Classification: C110, C530, D830, D840, E130, E310, E370