Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336431 
Year of Publication: 
2025
Citation: 
[Journal:] Latin American Journal of Central Banking (LAJCB) [ISSN:] 2666-1438 [Volume:] 6 [Issue:] 3 [Article No.:] 100144 [Year:] 2025 [Pages:] 1-24
Publisher: 
Elsevier, Amsterdam
Abstract: 
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.
Subjects: 
Carbon tax
Climate change
Monetary policy
Natural interest rate
Permanent shocks
Potential Output
Small and open economy
Total factor productivity
JEL: 
Q54
O44
E32
E52
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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