Download or read book The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia written by Nordine Abidi and published by International Monetary Fund. This book was released on 2024-04-26 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the effects of climate shocks on inflation and monetary policy in the Middle East and Central Asia (ME&CA) region. We first introduce a theoretical model to understand the impact of climate risks on headline and food inflation. In particular, the model shows how climate shocks could affect the path of policy rates through food prices. We then use local projections to estimate the impact of climate shocks on headline and food inflation. The results show that price stability is more easily achievable under positive climate conditions. Overall, our findings shed new light on the importance of considering climate-related supply shocks when designing monetary policy, particularly in countries where food makes up a significant part of the CPI-basket.