IDEAS home Printed from https://ideas.repec.org/p/bdr/borrec/1319.html
   My bibliography  Save this paper

Adverse Weather-Induced Inflation: Some Implications for Monetary Policy in a Small Open Economy

Author

Listed:
  • José Vicente Romero
  • Sara Naranjo-Saldarriaga
  • Jonathan Alexander Muñoz-Martínez

Abstract

This paper examines the macroeconomic impacts of adverse weather shocks on the Colombian economy, with a specific focus on agricultural output, food prices, and headline inflation. Drawing on empirical evidence from events such as the 2015–2016 El Niño, we document that these shocks tend to reduce agricultural output and increase inflation while having a limited effect on aggregate GDP growth. Motivated by these stylized facts, we develop a small open economy New Keynesian model for Colombia that introduces a mechanism in which weather shocks alter the relative prices of agricultural and non-agricultural goods. This framework allows us to capture the inflationary pressures induced by adverse climate events in a structural setting. Under our proposed calibration, food inflation, headline inflation, and inflation expectations rise in response to the shock, prompting the monetary authority to raise the interest rate to anchor inflation expectations. *****RESUMEN: Este documento examina los impactos macroeconómicos de choques climáticos adversos sobre la economía colombiana, con un enfoque específico en la producción agrícola, los precios de los alimentos y la inflación total. A partir de la evidencia empírica, documentamos que estos choques tienden a reducir la producción agrícola y aumentar la inflación, aunque con un efecto limitado sobre el crecimiento del PIB total. Motivados por estos hechos estilizados, se desarrolla un modelo neokeynesiano para una economía pequeña y abierta que introduce un mecanismo mediante el cual los choques climáticos afectan los precios relativos de bienes agrícolas y no agrícolas. Este marco permite capturar las presiones inflacionarias inducidas por eventos climáticos adversos de manera estructural. Bajo la calibración propuesta para Colombia, la inflación de alimentos, la inflación total y las expectativas de inflación aumentan en respuesta al choque, lo que lleva a la autoridad monetaria a incrementar parcialmente la tasa de interés con el fin de anclar las expectativas de inflación.

Suggested Citation

  • José Vicente Romero & Sara Naranjo-Saldarriaga & Jonathan Alexander Muñoz-Martínez, 2025. "Adverse Weather-Induced Inflation: Some Implications for Monetary Policy in a Small Open Economy," Borradores de Economia 1319, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:1319
    DOI: 10.32468/be.1319
    as

    Download full text from publisher

    File URL: https://doi.org/10.32468/be.1319
    Download Restriction: no

    File URL: https://libkey.io/10.32468/be.1319?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Extreme Weather events; El Niño Southern Oscillation (ENSO); Inflation; Small Open Economy New Keynesian Models; Eventos climáticos extremos; Fenómeno de El Niño (ENSO); Inflación; Economía pequeña y abierta; Modelos neokeynesianos.;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdr:borrec:1319. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Clorith Angélica Bahos Olivera (email available below). General contact details of provider: https://edirc.repec.org/data/brcgvco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.