Impact of Climate Change on Inflation and Output in Indonesia

The objective of this study is to examine the impact of climate change on inflation and output growth in Indonesia. The study utilizes monthly data from March 1994 to December 2022 and employs Granger causality and structural vector autoregression (SVAR) techniques. The empirical results reveal that temperature Granger-causes both inflation and output growth. The SVAR findings further show that a rise in temperature increases inflation and adversely affects output growth. Furthermore, the results reveal that the impact of climate change increases over time. Given this evidence, monetary and fiscal policies should integrate climate risks to mitigate their impact on macroeconomic variables.