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


  • IHEID Working Papers


  • 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.

fecha de publicación

  • 2022

Líneas de investigación

  • Climate Change
  • Kalman filter
  • Monetary Policy
  • Natural Interest Rate


  • 10-2022