A Counterfactual Analysis of the Effects of Climate Change on the Natural Interest Rate

Jair Ojeda-Joya

No 10-2022, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: Climate change will potentially bring about important macroeconomic effects for all countries in the world and especially for emerging economies. I perform a counterfactual analysis to estimate the potential effect of global warming on the natural interest rate using a state-space semi-structural model of inflation and output determination. The model is estimated with quarterly data for Colombia for the period 1994-2019. I simulate gradual warming of 1 degree Celsius during this period and include its potential effect on GDP growth and inflation according to recent cross-country estimations in the literature. The estimation with counterfactual data shows that the counterfactual natural interest rate decreases more rapidly to reach near 0% at the end of the period. This result is induced by the persistently negative effects of higher temperatures on trend output growth.

Keywords: Natural Interest Rate; Climate Change; Monetary Policy; Kalman filter (search for similar items in EconPapers)
JEL-codes: E43 E52 Q51 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2022-05-05
New Economics Papers: this item is included in nep-env and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP10-2022.pdf (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:gii:giihei:heidwp10-2022

Access Statistics for this paper

More papers in IHEID Working Papers from Economics Section, The Graduate Institute of International Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dorina Dobre ().