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Impacts of climate change on monetary policy

In: CNB Global Economic Outlook - April 2024

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  • Martin Motl

Abstract

Climate change has become one of the most pressing challenges facing humanity today. Its impacts are becoming increasingly apparent, mainly in the form of extreme weather fluctuations, putting significant pressure on economies around the world. As the direct environmental impacts of climate change increase in intensity, accompanied by the impacts of climate-related green policies, this factor is also becoming increasingly important for the future optimum monetary policy response from central banks. Climate shocks going beyond the normal business cycle also entail fundamental changes in the structure of individual economies and hence risks to central banks' ability to achieve price stability in the future. However, the current literature - from the perspective of the overall impacts on key macroeconomic variables, including the optimum settings of central bank interest rates - does not lead to clear conclusions. This article aims to identify individual shocks brought about by climate change and, based on a simulation of a global model for selected long-term climate scenarios, present recommendations for monetary policy-makers.

Suggested Citation

  • Martin Motl, 2024. "Impacts of climate change on monetary policy," Occasional Publications - Chapters in Edited Volumes, in: CNB Global Economic Outlook - April 2024, pages 14-21, Czech National Bank.
    • Handle: RePEc:cnb:ocpubc:geo2024/4
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    File URL: https://www.cnb.cz/export/sites/cnb/en/monetary-policy/.galleries/geo/geo_2024/gev_2024_04_en.pdf
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    References listed on IDEAS

    as
    1. Alessandro Cantelmo, 2022. "Rare Disasters, the Natural Interest Rate and Monetary Policy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 473-496, June.
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    3. Kalkuhl, Matthias & Wenz, Leonie, 2020. "The impact of climate conditions on economic production. Evidence from a global panel of regions," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
    4. George Economides & Anastasios Xepapadeas, 2018. "Monetary policy under climate change," Working Papers 247, Bank of Greece.
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