Impacts of climate change on monetary policy

Martin Motl

A chapter in CNB Global Economic Outlook - April 2024, 2024, pp 14-21 from Czech National Bank, Research and Statistics Department

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.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:ocpubc:geo2024/4

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