By Julie Gordon
OTTAWA (Reuters) -The Bank of Canada said on Wednesday it would develop new models and data sources to better understand how climate change is affecting the economy, and vowed to include these findings in its quarterly forecasts to help markets price risks.
The central bank will assess how more frequent severe weather events and the transition to low-carbon growth affect potential output, the labor market and inflation.
"Climate change and the transition to a low-carbon net zero economy will have significant macroeconomic consequences, touching every region and sector of the Canadian and global economies," the bank said in a statement tied to the United Nations' COP26 global climate summit in Scotland.
Increases in the frequency and severity of extreme weather events, along with the low-carbon transition, pose significant risks to Canada's financial system and the central bank will aim to help markets price those risks, it added.
Separately, Bank of Canada Deputy Governor Toni Gravelle said the steps needed to mitigate the effects of global warming would lead to massive restructuring and the risk that some parts of the economy would shrink.
"Asset values across the financial system could be subject to sharp declines in valuation, which might generate credit and market losses, and it might increase the stress on the financial system," he told a climate panel in Toronto.
The Bank of Canada, like other major central banks, is focusing on the impact of climate change and how the low-carbon transition will affect economies around the world.
It also pledged to work with domestic and international partners on issues like climate disclosures and the climate transition for nations with large resource sectors, like Canada.
The BoC is one of the most active global central banks on climate issues among major oil-producing nations. Canada is the fourth-largest oil producer in the world, with much of its output coming from carbon-intensive oil sands.
(With additional reporting by David Ljunggren and Ismail Shakil in Bengaluru;Editing by Andrea Ricci and Jonathan Oatis)