Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266125 
Year of Publication: 
2022
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP10-2022
Publisher: 
Graduate Institute of International and Development Studies, Geneva
Abstract: 
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 1êC 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.
Subjects: 
Natural Interest Rate
Climate Change
Monetary Policy
Kalman filter
JEL: 
E43
E52
Q51
Document Type: 
Working Paper

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