Macroeconomic Effects of Climate Change in an Aging World

Vimal Thakoor and Engin Kara

No 2022/258, IMF Working Papers from International Monetary Fund

Abstract: Climate and demographic changes are two major long-term trends that are evolving simultaneously. The global population is aging, while climate change is increasing the frequency and severity of weather-related disasters and lowering productivity. This paper examines the macroeconomic effects of these three changes in a common framework. Simulation results suggest that while aging drags down the real interest rate, climate change puts upward pressure on the real interest rate and inflation. As climate change intensifies, it will be the dominant factor shaping the macroeconomic variables. This results in higher inflation and a higher debt-to-GDP ratio, requiring tighter fiscal and monetary policies. The results further suggest that economic uncertainty induced by climate change amplifies these effects of climate change.

Keywords: Demographic change; climate change; natural disasters; simulation result; results summary; disaster shock; effects of climate change; consumption share; Consumption; Aging; Real interest rates; Global (search for similar items in EconPapers)
Pages: 51
Date: 2022-12-16
New Economics Papers: this item is included in nep-age and nep-env
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