Global | Short-term Climate Scenarios: Narratives, Shocks and Modelling

Summary

The increasing development of short-term climate scenarios is driven by enhanced supervisory expectation for a comprehensive understanding of the effects of climate change. Their design is a work in progress blending narratives, shocks and modeling tools.

Key points

• Key points:
• Physical or transition shocks triggered by climate events, policies or economic agents' decisions might impact in the short term with the potential risk of activity disruptions, financial markets stress or financial stability tantrum.
• Against this backdrop, the well-known approach of stress testing exercise for an economy or sector is increasingly extended from macroeconomic shocks to climate shocks at the rhythm of data improvement, expansion of scenarios (narratives, triggers, impact channels), and modeling approaches.
• The clustering of various alternative narratives into supply or demand shocks helps to develop transmission channels throughout the economic system and to shape the severity and persistence of their impacts on activity and inflation.

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