Climate-related disasters pose significant risks to economic and financial stability. This paper examines their dynamic macro-financial impacts in Indonesia using a local projections approach. The study estimates that disasters have temporary yet detrimental effects on macroeconomic variables. Economic growth contracts due to production disruptions and reduced consumption, while producer price inflation rises more sharply than consumer price inflation, reflecting both supply and demand-side pressures. In contrast, the impacts on financial stability, as reflected by elevated credit risk and lower credit growth, tend to be more persistent, although they emerge with a lag following the disaster shocks. The macro-financial responses vary across disaster types. The findings underscore the need for policies to navigate these challenges.

 

Funded through the 2024 CSIS DfD Lab Call for Proposals