Impact of Extreme Climate Change on Inflationary expectations and its Influence on SARB Macroeconomic Policy in South Africa

Mixo Sweetness Sithole

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigated the impact of extreme climate change on inflationary expectations and its implications for macroeconomic policy in South Africa over the period 1970 to 2023. Using an Autoregressive Distributed Lag (ARDL) model, the analysis explores both the short run and long run relationships between inflation and key climate and macroeconomic indicators, including temperature anomalies, agricultural output, food production, broad money supply, real interest rates, and carbon dioxide (C02) emissions. The ARDL bounds test confirmed the existence of a long run cointegration relationship among the variables. Empirical findings revealed that rising temperatures and C02 emissions exert significant inflationary pressures in both the short run and long run. Conversely, increases in agricultural output and money supply are associated with disinflationary effects. The error correction term is negative and statistically significant, indicating a rapid adjustment towards equilibrium following short-term shocks. Diagnostic tests confirmed the stability and robustness of the model. These findings underscored the macroeconomic significance of climate change and highlighted the need for the South African Reserve Bank (SARB) to incorporate climate-related risks into its inflation-targeting framework and broader policy formulation.

Keywords: Climate change; inflation; temperature; central bank; microeconomic policy; South Africa (search for similar items in EconPapers)
JEL-codes: Q11 Q18 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-agr and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/125395/1/MPRA_paper_125395.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:125395

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().