Climate-Augmented Taylor Rule: Integrating Climate-Induced Supply Shocks into Monetary Policy for Asian Economies

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Provides empirical evidence on climate-macro linkages and a novel composite climate shock index for monetary policy analysis.

🏛政策担当者:Suggests that central banks should consider climate-induced supply shocks when setting interest rates, with heterogeneity across economies.

This study aims to assess the monetary policy behaviour in nine Asian economies, namely, Pakistan, India, Bangladesh, Sri Lanka, Vietnam, Thailand, Philippines, Indonesia and Malaysia, and determine whether a Climateächlich Taylor Rule (CATR) is more representative of the monetary policy behaviour for the period 2002-2024. The analysis is based on the standard Taylor framework, but with a composite Climate Shock Index (CSI) based on Principal Component Analysis (PCA) of temperature anomalies, rainfall deviations and disaster-related indicators, which are used as proxies for climate-driven supply shocks. Results indicate that climate shocks have a positive and statistically significant impact on policy interest rate, even after controlling for inflation and output conditions, using dynamic panel techniques including diagnostic testing and robustness checks. Country-specific coefficients indicate a stronger climate response for more Agriculture-dependent and climate-vulnerable economies like that of Pakistan, Bangladesh, and Sri Lanka, implying high cross-country heterogeneity. The results overall suggest that conventional Taylor rule types are incomplete when facing rising climate risks and argue for the inclusion of climate variables in monetary policy reaction functions for the emerging Asian economies. References Ahmed, I., & Asif, M. (2026). The Role of HR in Managing Quiet Quitting and Employee Disengagement in Gen Z Employees of Telecom Sector. Policy Journal of Social Science Review, 4(6), 118-151. https://doi.org/10.5281/zenodo.20581688 Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277–297. Asian Development Bank. (2024). 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