Climate change and the influence of monetary policy in China

Xiaoni Song and Tong Fang

Journal of Applied Economics, 2024, vol. 27, issue 1, 2329840

Abstract: We investigate whether climate change affects the efficiency of monetary policy. We use temperature shocks, calculated as temperature deviations from historical average temperatures, to proxy climate change, and utilize a threshold vector autoregression model (TVAR) to estimate the impact of expansionary and tight monetary shocks on economic output under high and low regimes of temperature shocks. Our results characterize a climate change regime-dependent monetary policy. Expansionary monetary policy is less efficient and the negative impact of tight monetary policy is enhanced, when climate change is severe. The results can be explained by the climate-induced credit constraint of commercial banks. Higher temperature shocks lead to increases in banks’ non-performing loan ratios, which results in larger credit constraints of banks. Banks tend to be more prudent in credit expansion, and the bank credit channel of monetary policy transmissions is weakened.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/15140326.2024.2329840 (text/html)
Access to full text is restricted to subscribers.

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:taf:recsxx:v:27:y:2024:i:1:p:2329840

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/recs20

DOI: 10.1080/15140326.2024.2329840

Access Statistics for this article

Journal of Applied Economics is currently edited by Jorge M. Streb

More articles in Journal of Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().