The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia
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Summary:
This paper investigates the effects of climate shocks on inflation and monetary policy in the Middle East and Central Asia (ME&CA) region. We first introduce a theoretical model to understand the impact of climate risks on headline and food inflation. In particular, the model shows how climate shocks could affect the path of policy rates through food prices. We then use local projections to estimate the impact of climate shocks on headline and food inflation. The results show that price stability is more easily achievable under positive climate conditions. Overall, our findings shed new light on the importance of considering climate-related supply shocks when designing monetary policy, particularly in countries where food makes up a significant part of the CPI-basket.
Series:
Working Paper No. 2024/090
Subject:
Central bank policy rate Climate change Consumer price indexes Environment Financial services Food prices Inflation Prices
Frequency:
regular
English
Publication Date:
April 26, 2024
ISBN/ISSN:
9798400274459/1018-5941
Stock No:
WPIEA2024090
Format:
Paper
Pages:
30
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