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Climate change will potentially bring about important macroeconomic effects for all countries in the world and especially for emerging economies. I perform a counterfactual analysis to estimate the potential effect of global warming on the natural interest rate using a state-space semi-structural model of inflation and output determination. The model is estimated with quarterly data for Colombia for the period 1994-2019. I simulate gradual warming of 1°C during this period and include its potential effect on GDP growth and inflation according to recent cross-country estimations in the literature. The estimation with counterfactual data shows that the counterfactual natural interest rate decreases more rapidly to reach near 0% at the end of the period. This result is induced by the persistently negative effects of higher temperatures on trend output growth.
This paper shows one type of asymmetric information problems, their theoretical implications, the design of contracts that mitigate them, as well as some experimental evidence. Furthermore, by extrapolating the results, the paper tries to illustrate certain macroeconomic implications obtained under a controlled environment.
This Selected Issues paper analyzes spillover risks for Colombia. It highlights that external shocks could spill over to the Colombian economy through the country’s important and growing trade and financial linkages with the rest of the world. Colombia would be most exposed to a decline in oil prices, which could have a sizable adverse impact on the balance of payments, the fiscal accounts and growth. Growth shocks in key trading partners could also have a negative impact, particularly in the United States, which is Colombia’s main trading partner. Colombia’s fiscal rule and adjustment in the context of resource wealth is also analyzed.