Macroeconomic Effects of Climate Change in an Aging World

December 16, 2022

Preview Citation

Format: Chicago

Vimal V Thakoor, and Engin Kara. Macroeconomic Effects of Climate Change in an Aging World, (USA: International Monetary Fund, 2022) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Climate and demographic changes are two major long-term trends that are evolving simultaneously. The global population is aging, while climate change is increasing the frequency and severity of weather-related disasters and lowering productivity. This paper examines the macroeconomic effects of these three changes in a common framework. Simulation results suggest that while aging drags down the real interest rate, climate change puts upward pressure on the real interest rate and inflation. As climate change intensifies, it will be the dominant factor shaping the macroeconomic variables. This results in higher inflation and a higher debt-to-GDP ratio, requiring tighter fiscal and monetary policies. The results further suggest that economic uncertainty induced by climate change amplifies these effects of climate change.

Subject: Aging, Climate change, Consumption, Demographic change, Environment, Financial services, National accounts, Population and demographics, Real interest rates

Keywords: Aging, Climate change, Consumption, Consumption share, Demographic change, Disaster shock, Effects of climate change, Global, Natural disasters, Real interest rates, Results summary, Simulation result

Publication Details

Pages:

51
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/258
Stock No:

WPIEA2022258
ISBN:

9798400226397
ISSN:

1018-5941

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