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The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia
Author:
Nordine Abidi https://isni.org/isni/0000000404811396 International Monetary Fund

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Mehdi El Herradi
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Boriana Yontcheva https://isni.org/isni/0000000404811396 International Monetary Fund

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Ananta Dua
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 090
Language:
English
Publication Date:
26 Apr 2024
DOI:
https://doi.org/10.5089/9798400274459.001
ISBN:
9798400274459
ISSN:
1018-5941
Pages:
30
Keywords:
Monetary policy; inflation; climate change; food inflation; monetary policy in the Middle East and Central Asia; IMF working paper 24/90; monetary policy shock; food price; Food prices; Central bank policy rate; Consumer price indexes; Middle East and Central Asia; Global
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund