Together with KAIST, SFI hosts a monthly seminar about innovative policy and financial mechanisms designed to rapidly decarbonize the global economy.

Up next on Thursday, March 13:

Professor Ki Young Park from the School of Economics at Yonsei University, a former member of the Monetary Policy Board at the Bank of Korea, will discuss climate stress testing in central banking, focusing on the case of South Korea. Climate change presents significant risks to financial stability, making it essential for central banks and financial supervisory authorities to assess its impact through climate stress tests. This study, conducted jointly by the Bank of Korea's Financial Stability Department, conducts a climate stress test that explicitly incorporates South Korea’s climate policy goals.

Using various scenario-based approaches—including policy shocks (carbon pricing), technological shocks (renewable energy adoption), and combined stress scenarios—the study evaluates the macroeconomic and financial implications of climate change. It applies the NiGEM macroeconomic model and a New Keynesian DSGE model to estimate the impact on GDP, inflation, financial markets, and banking sector stability. Results indicate that while certain industries, particularly fossil fuel-dependent sectors, may face substantial losses, proactive policy measures can help mitigate systemic financial risks.

Furthermore, the study highlights the evolving role of central banks in addressing climate risks and underscores climate stress testing as a critical tool for ensuring financial stability. By providing valuable insights for risk management and long-term financial planning, climate stress testing can help financial institutions and policymakers navigate the challenges posed by climate change.