Does macroeconomic transmission streams matter for climate change and banking system stability relationships in selected Sub-Saharan economies?

Abstract

This study examines the macroeconomic transmission streams through which climate change impacts banking system stability in selected sub-Saharan economies. Climate change has become a paramount issue facing planet Earth. As a result, numerous empirical studies have emerged examining the impact of climate change on financial activities. Further, the study adopts the quantitative research methodology in a panel data framework and employs the wavelet coherence technique on the basis that it combines both time interval and frequency dimensions in its assessment. The study utilizes 29 selected economies from SSA for the period 1996-2017. The overall findings show that macroeconomic indicators (inflation, labor productivity, real GDP, and real exchange rate) serve as pathways through which climate change impacts banking system stability in selected sub-Saharan economies. It was also revealed that interaction between greenhouse gas emissions and labor productivity has more continuous coherence (both in the short-term and long-term) than any other variable used in this present study. We recommend that central banks, monetary authorities, and government on policy front consider macroeconomic effects in the integration of climate change policies for stable banking system operations in SSA. Macroeconomic indicators are highly sensitive; however, it is well-written that fundamentals of macroeconomic indicators in SSA are weak.