Research on the impact of extreme climate on financial asset price —based on the DSGE model

This paper examines the dynamic impact of extreme climate events on financial asset prices using a dynamic stochastic general equilibrium (DSGE) model. It incorporates key economic agents, such as households, firms, and the financial sector, to explore how extreme weather shocks affect the real economy and financial stability. The results show that such shocks reduce aggregate output and capital returns, increasing financial asset price volatility. Moreover, financial frictions amplify the non-linear effects of these shocks, leading to higher risk premiums and deviations from asset fundamentals. The deterioration of the real economy also weakens corporate profitability and solvency, heightening systemic financial risks. Finally, the paper highlights how financial factors, such as credit constraints and reduced asset demand, further exacerbate the impact of climate shocks. These findings provideinsights for policymakers on the transmission channels of climate risk and the potential benefits of macroprudential regulation.