“Climate change and monetary policy: issues for policy design and modelling”

Warwick J. McKibbin discussed the interaction of monetary policy and climate change as they jointly influence macroeconomic outcomes. In particular, he presented the simulations included in the paper “Climate change and monetary policy: issues for policy design and modelling,” he co-authored with Adele C. Morris, Peter J. Wilcoxen, and Augustus J. Panton which was published in 2021 in the Oxford Review of Economic Policy. From the abstract:

The paper has four parts. First, it reviews the relevant macroeconomic outcomes of emissions mitigation policy and climatic disruption, exploring how negative supply shocks can affect central banks’ ability to forecast and manage inflation. Second, the paper reviews basic approaches to monetary policy, including inflation and output targeting, and other responsibilities that may fall to central bankers. Third, we bring together the two sets of issues to consider the appropriate monetary framework in a carbon-constrained and climatically disrupted world and to highlight the climate policy frameworks that can make monetary policies more efficient and effective. We then summarize the nature of the macroeconomic modelling framework that is needed to better analyse climate and monetary policy interactions. We conclude that policy responses to climate change can have important implications for monetary policy and vice versa and that, in light of the urgency of ambitious climate action, these policy spheres should be brought together more explicitly and more appropriate macroeconomic modelling frameworks developed.