How Persistent are Climate-Related Price Shocks? Implications for Monetary Policy
IMF Working Papers, October 28, 2022
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Bibliographic details
- Authors: Alain N. Kabundi, Montfort Mlachila, Jiaxiong Yao
- Published: October 28, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400223556.001
Research objective and methodology
- Main objective: investigate how climate shocks affect consumer prices in a broad range of countries over a long period.
- Method: local projection methods.
- Scope: broad range of countries over a long period (as stated in the source).
Key empirical findings
- The impact of climate shocks on inflation depends on the type and intensity of shocks, country income level, and monetary policy regime.
- Droughts tend to have the highest overall positive impact on inflation, reflecting rising food prices.
- Floods tend to have a dampening impact on inflation, pointing to the predominance of demand shocks in this case.
- Over the long run, the dominant monetary policy paradigm of flexible inflation targeting faced with supply-induced climate shocks may become increasingly ineffective, especially in LIDCs.
- More research is needed to find viable alternative monetary policy frameworks.
Policy implications and recommendations
- Monetary policy frameworks should account for heterogeneous effects of different climate shock types (e.g., droughts versus floods).
- The potential diminishing effectiveness of flexible inflation targeting in the presence of supply-induced climate shocks, particularly in LIDCs, implies a need to explore alternative monetary policy frameworks.
- Additional research is required to identify and evaluate viable alternative monetary policy frameworks that can better address climate-related supply and demand shocks.
Publication metadata and key statistics
- Authors: Alain N. Kabundi, Montfort Mlachila, Jiaxiong Yao
- Date: October 28, 2022
- Series: Working Paper No. 2022/207
- Issue: 207
- Volume: 2022
- Pages: 50
- DOI: https://doi.org/10.5089/9798400223556.001
- ISBN: 9798400223556
- ISSN: 1018-5941
- Stock No: WPIEA2022207
IMF Working Papers — "How Persistent are Climate-Related Price Shocks? Implications for Monetary Policy" (October 28, 2022) by Alain N. Kabundi, Montfort Mlachila, Jiaxiong Yao.
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