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Climate change’s impact on commodity prices: a new challenge for monetary policy

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  • Jamilu Iliyasu

    (Ahmadu Bello University, Business School)

  • Aliyu Rafindadi Sanusi

    (Ahmadu Bello University, Business School)

Abstract

Climate change is a global issue that is driving up commodity prices such as food, energy and fertiliser. In this light, this study examines the effects of climate change on international commodity prices (food, energy, and fertilisers) from 1961 to 2020. The study employs a Bayesian Vector Autoregression (BVAR) model identified with sign restrictions. First, this study finds that climate change causes an increase in commodity prices, with the effect being greatest for energy, followed by fertilisers, and least for food prices. Second, this study also finds that climate change may have amplified the short-run impact of fertiliser and energy prices on food prices. Third, the estimates suggest that climate change may have a negative impact on global real GDP. Overall, this study’s findings of global climate change’s positive effects on commodity prices and a negative impact on global real GDP, suggests that monetary authorities may face higher inflation-output trade-off. Hence, this study argues that climate change may be a new challenge to monetary policy strategy, particularly in countries that are net importers of staple foods and have a large share of food items in their consumer price index.

Suggested Citation

  • Jamilu Iliyasu & Aliyu Rafindadi Sanusi, 2024. "Climate change’s impact on commodity prices: a new challenge for monetary policy," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(2), pages 187-212, May.
    • Handle: RePEc:spr:portec:v:23:y:2024:i:2:d:10.1007_s10258-023-00237-2
    DOI: 10.1007/s10258-023-00237-2
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    References listed on IDEAS

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    1. Kristin Forbes & Ida Hjortsoe & Tsvetelina Nenova, 2020. "International Evidence on Shock-Dependent Exchange Rate Pass-Through," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(4), pages 721-763, December.
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    Cited by:

    1. Lukman A. Lasisi & Franklin N. Ngwu & Mohammed K. Taliat & Abeeb O. Olaniran & Kelechi C. Nnamdi, 2025. "Modelling commodity market volatility with climate policy uncertainty: a GARCH-MIDAS approach," SN Business & Economics, Springer, vol. 5(3), pages 1-21, March.

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    More about this item

    Keywords

    Climate change; Energy prices; Food prices; Fertiliser prices; Monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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