on the economic and financial risks that emanate from global warming and associated climatic events on the one hand, and from measures implemented to support the transition to a low - carbon economy on the other. i shall also explain how, within the scope of its monetary policy mandate, the snb factors these risks into its deliberations and actions. economists began to view climate change as a major challenge in the 1970s and this topic has since been the subject of numerous studies. 1 furthermore, in 2018, the sveriges riksbank prize in economic sciences in memory of alfred nobel, the equivalent of the nobel prize in economics, recognised william nordhaus for his work on integrating climate change into long - run macroeconomic analysis. nordhaus, w. d. ( 1977 ), ‘ economic growth and climate : the carbon dioxide problem ’, american economic review 67 ( 1 ), pp. 341 – 346. page 2 / 12 it may seem obvious, but it is worth reminding ourselves that our planet has undergone numerous climatic changes throughout history. however, in the past, these changes have essentially been the result of natural forces. today, global warming is largely attributable to human activity – and the rate of warming is faster than it has been in the past. 2 climate change is a negative side - effect of economic activity – what economists call a ‘ negative externality ’. the externality arises because the costs caused by the emission of co2 and other greenhouse gases are not borne by the emitters. when economic agents emit co2, they do not internalise the effect of these emissions on the planet or on future generations. this is a classic ‘ tragedy of the commons ’ scenario : 3 the atmosphere – a shared or ‘ common ’ resource that is available to us all but belongs to no one – is being overexploited and degraded. the mechanism underlying the ‘ tragedy of the commons ’ is well understood and documented by economic theorists. yet, in the case of global warming, several factors are in play that make the phenomenon difficult to grasp and remedy. first, both climate change and its effects on the economy are hard to estimate with any degree of accuracy. 4 second, the impact of climatic phenomena is transnational and this complicates efforts to respond appropriately. third, the effects of climate change are felt incrementally and over a very long timescale, which includes future generations. the needs, precise aspirations and technical capabilities of these future generations

. indeed, they are part of a wellfunctioning credit market. my suspicion – which remains to be confirmed or disproven – is that the macro prudential policy tools that we introduced have not had much direct effect on bank lending yet. indirect effects however, there are good reasons to believe that the new rules have had positive indirect effects on the market by reducing speculative demand. episodes of rapid house price increases have typically a speculative element. for instance, buyers may enter the market simply because they believe that prices will rise rapidly for some time so that capital gains can be reaped by entering the market. but speculation can also take the form of younger buyers naturally getting worried about the risk of delaying getting on the property ladder, and therefore entering the market early before prices rise too much. as these examples suggest, the demand for property today depends not only on current supply - demand conditions, in particular on the availability of credit, but also on buyers ’ expectations of future prices. of course, these in turn depend on, among other things, the availability of mortgage credit in the future. thus, if investors believe that credit will be abundant in the future, this will drive up prices today. the introduction of the macro prudential measures seems to have led buyers to realise that a repetition of the seemingly uncontrolled expansion of credit, including to borrowers that were not creditworthy, that played a central role in the last boom, will not be permitted to reoccur. with expectations of future prices being scaled back, the demand for housing is reduced now and prices grow more slowly. overall, the measures may have thus removed the speculative element. this is most evident in the moderation of future house price expectations which has occurred since the introduction of the measures, as reported in survey evidence. a 2015q2 survey carried out by daft. ie of 1, 000 property market participants shows that expected national and dublin house price growth ( for the year ahead ) has fallen significantly since the introduction of the new mortgage rules was first mooted. moreover, asked to identify factors underlying downward revisions to their house price forecasts, a large number cited the recent macro prudential measures. according to the findings of the cbi / scsi ’ s ( 2015q2 ) survey of individuals employed in the property market, while a majority of respondents expect residential property prices to increase over the next year and next three years, the percentage doing so has fallen in recent quarters,