Jacob Kim-Sherman and Lee Seltzer

Understanding the economic and financial consequences of natural disasters is a major concern for researchers and policymakers. The way in which overlapping natural disaster systems interact, as exemplified by the recent fires in Los Angeles being exacerbated by strong winds, is a major area of study in environmental science but has received comparatively little attention in the economics literature. Examining these potential interactions would likely be important for financial institutions, since such assessments would, in many instances, increase the estimated financial impact of a given natural disaster. In our recent Staff Report, we develop a method of identifying disaster systems in natural disaster data, such as the Spatial Hazard Events and Loss Database (SHELDUS), and use it to argue that the economics and finance literatures may have overlooked some sources of systemic risk.