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

Serie

• IHEID Working Papers

Resumen

• 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.

autores

• Ojeda-Joya, Jair

fecha de publicación

• 2022

Área temática

• E43 - Tipos de interés: determinación, estructura temporal y efectos
• E52 - Política monetaria
• Q51 - Evaluación de los efectos en el medioambiente

Enfoque geográfico

• Colombia  Country
• South America  Continent

Líneas de investigación

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

Issue

• 10-2022