The study of monetary policy effectiveness under different climate change scenarios Iran's economy

Document Type : Research Article

Authors

1 Ph.D. Candidate in Economics, Ferdowsi University of Mashhad, Mashhad, Iran

2 Department of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran

3 Department of Economics, Faculty of Economics and Administrative Sciences, Mashhad, Iran

10.22084/aes.2024.29701.3711

Abstract

There is a widespread belief that pollution and climate change have a negative effect on the economies of different countries. For this reason, today the climate policies are considered to reduce the concentration of greenhouse gases (especially Carbon Dioxide). In addition, economic policies also have some effects on pollution. In particular, it is said that monetary policy is not only for spurring economic growth but also an important tool for controlling CO2 emission, too. Then, a question is arised here that how does the effectiveness of monetary policy change in controlling inflation under different scenarios of climate change in Iran? The hypothesis of the current research is that monetary policy in controlling inflation is more effective in severe climate changes. For testing, an E-DSGE model was designed so that it can take into account macroeconomic and climate policy considerations at the same time. The results showed that after the occurrence of climate changes, total factors productivity, investment, capital stock and production will decrease and these will be almost permanent if the climate changes are not severe. But the central bank, in the face of extreme climate changes, implements a more extreme expansionary monetary policy. The interest rate will decrease further and the savings will be converted into consumption for reconstruction and as a result it neutralizes part of the effects of inflation caused by the implementation of such policy. Therefore, “creative destruction” occurs in the case of severe climate change and “no-recovery” occurs in the case of moderate climate change.

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Journal of Applied Economics Studies in Iran

Articles in Press, Accepted Manuscript
Available Online from 20 October 2024

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