The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia

By Nordine Abidi, Mehdi El Herradi, Boriana Yontcheva, Ananta Dua

April 26, 2024

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Nordine Abidi, Mehdi El Herradi, Boriana Yontcheva, and Ananta Dua. The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia, (USA: International Monetary Fund, 2024) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Central bank policy rate, Climate change, Consumer price indexes, Environment, Financial services, Food prices, Inflation, Prices

Keywords: Central bank policy rate, Climate change, Consumer price indexes, Food inflation, Food price, Food prices, Global, IMF working paper 24/90, Inflation, Middle East and Central Asia, Monetary policy, Monetary policy in the Middle East and Central Asia, Monetary policy shock

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/090
Stock No:

WPIEA2024090
ISBN:

9798400274459
ISSN:

1018-5941

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