Macroeconomic Risk Management Against Natural Disasters: Analysis focussed on governments in developing countries
Looking back in history, we conceive the twentieth century as the century of wars. Most Hkely, we will conceive the twenty-first century as the century of (natural) catastrophes. Wars can be avoided (unfortunately, it did not happen often in history), in contrast, most natural disasters are outside human influence. However, the consequences of disasters can be alleviated by means of risk management. For an effective risk management, information is needed about (i) the size of the risk (measured by the frequency and intensity of the hazard), and (ii) the degree of vulnerability of the economy and society. Stefan Hochr- ner's thesis deals with measuring and modehng of both. While the physical risk modeUng is a well developed area within statistical modeling (frequency analysis, point processes, extreme value theory, etc. ), estimating the economic consequences is a more challenging task. The author studies economic effects of catastrophes by statistical analysis of mac- economic data. One interesting finding is that disasters can decrease the absolute level of economic performance, such as the GDP, while keeping growth levels nearly the same (at least after some years) as in the pre-disaster years. The boom of new products in the financial markets, especially of new derivative instru ments, has led to new risk hedging instruments such as catastrophe bonds. CAT-bonds transfer the risk to the market of investors.
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Natural disaster risk
List of Figures
List of Tables
Economic impacts Statistical analysis 29
Natural disaster risk management measures
Financial resilience of the public sector
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100 year event adverse selection aleatory analysis assess attachment point average growth rate billion USD calculated cat-bonds catastrophe bonds catastrophe models catastrophe risk catastrophic event CatSim Colombia contingent credit arrangement costs damage decrease developing countries direct risk Disaster Risk Management due to natural earthquake ECLAC elements at risk estimated event loss ex-ante instruments ex-ante measures ex-post instruments ex-post measures example figure financial resilience financial risk management financial vulnerability Flood Freeman Furthermore higher Honduras Hurricane IDNDR increase infrastructure Keipi Kunreuther long term effects loss financing Loss-gov macroeconomic risk Mechler Median Microinsurance million mitigation measures Munich natural disaster risk natural disasters natural hazards negative parameters percent portfolio pre-disaster period premiums private sector probability public sector real growth reserve fund return period risk management strategies risk reduction Salvador sample scenarios simulation sq km structure Swiss Table uncertainty UNISDR user interface variable budget weather derivatives World Bank XL-insurance