THE EFFECTS OF CLIMATE CHANGE ON A SMALL OPEN ECONOMY
Athens University of Economics and Business, and CESifo
Athens University of Economics and Business and University of Bologna
We investigate the impact of climate change on the macroeconomic performance of a small open economy. The setup is a new Keynesian dynamic stochastic general equilibrium model of a small open economy without monetary policy independence in which a climate module that interacts with the economy has been incorporated. The model is solved numerically using common parameter values, fiscal data and projections about temperature growth from the Greek economy. Our results, suggest that climate change implies a significant output loss and a deterioration of competitiveness. Moreover, it seems that the loss of monetary policy independence is not a big loss, when we investigate the short- and long-term implications of climate change for a small open economy.
JEL classification: E5; E1; EQ5.
Keywords: Climate change, monetary policy, new Keynesian models.
Acknowledgement: The authors acknowledge financial support from the Bank of Greece. We would like to thank the Research Department of the Bank of Greece, Apostolis Philippopoulos and Petros Varthalitis for discussions and comments on earlier versions of this paper. Any errors are the responsibility of the authors.
Athens University of Economics and Business
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