global mean temperatures to 1. 5 degrees, physical risks are likely to dominate the potential impacts of transition. and if instead we continue on our current trajectory, losses just from the impact on productivity could be as high as 13 % of gdp. 8 in addition, many of the leading studies, including those we used in the ngfs, start from past correlations and so find it hard to put an accurate number on the type of low - probability, high impact events that will become more common. as high levels of warming will be unprecedented, we don ’ t yet fully understand the delicate balance between the climate, living conditions, ecosystems and the economy - for example, the level at which ice melts might accelerate ; or methane stores under permafrost might be unlocked. what is clear is that investment is needed now to help adapt to these inevitable changes. and that we should recognise the gaps in our understanding of how large changes to our climate might affect our economies. challenges in applying scenarios while these key themes are clear, i know from our own experience, and from the firms we supervise, that applying the scenarios in practice is not straightforward. the models, data and analytical frameworks are new, and the transmission channels are complex and subject to much uncertainty. the results can be sensitive to input assumptions and type of model used. this leads to a tendency to focus on a limited number of transmission channels and pockets of risk – for example, focusing on the costs of emissions in the most carbon - intensive sectors and ignoring other channels like changes to demand or costs of energy and materials. but these are important channels too. we need to capture all potential dependencies and feedback loops. there are obvious dangers too in relying on past data and historical correlations for what is an unprecedented challenge. we need to re - examine existing models and consider whether climate change will cause some of these relationships to shift. there are perhaps parallels to the financial crisis where models provided false comfort. the most obvious case for this is in physical risk where we know there are non - linearities that are not well captured. all of these factors lead me to believe that financial firms and businesses are significantly underestimating the potential impacts, and ‘ green swan ’ events are not just possible but likely until capabilities, understanding and management of these risks are greatly improved. preliminary analysis for the updated ngfs climate scenarios. i would offer a few pieces of advice to users of scenarios. don ’ t get bogged down in a spurious amount of

malcolm edey : inquiry into affordable housing opening remarks by mr malcolm edey, assistant governor ( financial system ) of the reserve bank of australia, and ms luci ellis, head of financial stability department of the reserve bank of australia, at inquiry into affordable housing, canberra, 2 october 2014. * * * thank you, chair, for the opportunity to discuss the reserve bank ’ s views on this important topic of housing affordability. this is a subject on which the bank has published a good deal of analysis over the years. i will refer in particular to our submission to this inquiry in february, and also to our most recent financial stability review, released last week, which covers our assessment of current developments. my colleague luci ellis was the author of the february submission and she will be happy to answer any detailed questions on its contents in due course. 1 in these opening remarks, i will be drawing on some of the key points from those two sources. there are a number of things that people might have in mind when they use the term “ affordability ”. affordability measures will differ depending upon whether we are talking about owners or renters, and on whether we are interested in some specific market segment, like first home buyers or low - income households. for owner - occupiers, perceptions of affordability will depend on many things including price, household income, the cost and availability of finance, and a host of factors affecting the needs and aspirations of the buyer. in any analysis it is necessary to make use of summary measures, while acknowledging that these inevitably gloss over the diversity of experience across different types of households. much of the public discussion on affordability is focused on home purchasers. a useful summary measure is the repayment on a typical new housing loan expressed as a ratio to disposable income. on that metric, housing affordability in australia has fluctuated around a broadly stable average over the past three decades, with average repayments varying between around 20 and 30 per cent of disposable incomes. these data are reported in our submission. currently this figure is a bit below average, but it has been rising in the period since the publication of the submission, as the housing market has gathered momentum. over the same 30 - year period, the ratio of housing prices to incomes has increased substantially. these developments in prices and affordability have been inter related. housing prices received a substantial boost from the combined effects of disinflation and financial deregulation