The effects of climate change on a small and open economy: Economic and monetary perspectives
This policy note analyses the impacts of climate change on a small and open economy, emphasizing its effect on monetary policy. We use a New-Keynesian model to evaluate short- and long-term effects of transition climate change shocks – a permanent and anticipated shock to total factor productivity a...
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| Format: | Article |
| Language: | English |
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Elsevier
2025-09-01
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| Series: | Latin American Journal of Central Banking |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S2666143824000267 |
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| author | Jesús Bejarano Daniela Rodríguez |
| author_facet | Jesús Bejarano Daniela Rodríguez |
| author_sort | Jesús Bejarano |
| collection | DOAJ |
| description | This policy note analyses the impacts of climate change on a small and open economy, emphasizing its effect on monetary policy. We use a New-Keynesian model to evaluate short- and long-term effects of transition climate change shocks – a permanent and anticipated shock to total factor productivity and an increase in carbon taxes – on main macroeconomic variables, such as potential output, natural interest rate, inflation, and real exchange rate. The results suggest a gradual decline in potential output attributable to climate change, leading to increased production costs. Regarding the short term, the natural interest rate and inflation decrease. The timing of climate change effects on productivity will dictate the extent of their impacts and the response required from monetary policy. In a small and open economy such as Colombia, carbon taxes have a quantitatively low impact on macroeconomic variables in both the short and long run. |
| format | Article |
| id | doaj-art-7642ec4062a54e8c9e02eceefcc9552f |
| institution | Kabale University |
| issn | 2666-1438 |
| language | English |
| publishDate | 2025-09-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Latin American Journal of Central Banking |
| spelling | doaj-art-7642ec4062a54e8c9e02eceefcc9552f2025-08-21T04:17:18ZengElsevierLatin American Journal of Central Banking2666-14382025-09-016310014410.1016/j.latcb.2024.100144The effects of climate change on a small and open economy: Economic and monetary perspectivesJesús Bejarano0Daniela Rodríguez1Corresponding author.; Banco de la República, Bogotá, Carrera 7 # 14-78 – Bogotá - Colombia, ColombiaBanco de la República, Bogotá, Carrera 7 # 14-78 – Bogotá - Colombia, ColombiaThis policy note analyses the impacts of climate change on a small and open economy, emphasizing its effect on monetary policy. We use a New-Keynesian model to evaluate short- and long-term effects of transition climate change shocks – a permanent and anticipated shock to total factor productivity and an increase in carbon taxes – on main macroeconomic variables, such as potential output, natural interest rate, inflation, and real exchange rate. The results suggest a gradual decline in potential output attributable to climate change, leading to increased production costs. Regarding the short term, the natural interest rate and inflation decrease. The timing of climate change effects on productivity will dictate the extent of their impacts and the response required from monetary policy. In a small and open economy such as Colombia, carbon taxes have a quantitatively low impact on macroeconomic variables in both the short and long run.http://www.sciencedirect.com/science/article/pii/S2666143824000267Q54O44E32E52 |
| spellingShingle | Jesús Bejarano Daniela Rodríguez The effects of climate change on a small and open economy: Economic and monetary perspectives Latin American Journal of Central Banking Q54 O44 E32 E52 |
| title | The effects of climate change on a small and open economy: Economic and monetary perspectives |
| title_full | The effects of climate change on a small and open economy: Economic and monetary perspectives |
| title_fullStr | The effects of climate change on a small and open economy: Economic and monetary perspectives |
| title_full_unstemmed | The effects of climate change on a small and open economy: Economic and monetary perspectives |
| title_short | The effects of climate change on a small and open economy: Economic and monetary perspectives |
| title_sort | effects of climate change on a small and open economy economic and monetary perspectives |
| topic | Q54 O44 E32 E52 |
| url | http://www.sciencedirect.com/science/article/pii/S2666143824000267 |
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