Tail risk contagion among climate risk, EPU, and global financial markets

Based on the monthly data from January 2006 to December 2023, we construct the climate risk index and employ the Quantile Vector Autoregression (QVAR) model to explore the tail risk contagion among climate risk, economic policy uncertainty (EPU), and global financial markets. Findings highlight the amplification of contagion under extreme market conditions, especially in the upper quantiles, where the impact of climate risk on EPU and financial markets is significantly intensified. Risk contagion demonstrates notable asymmetry, with varying spillover effects depending on market volatility. Additionally, the roles of EPU and financial markets in the contagion network are time-varying and condition-dependent, revealing dynamic changes in their contributions to risk transmission across different economic environments.