The effects of climate shocks on monetary policy in Turkey

Climate change is quite clearly felt through temperature increases above seasonal norms and reduced rainfall. Disasters such as droughts, floods and storms resulting from climate change can have negative effects on the economy. However, there is uncertainty regarding the magnitude of the impact that climate shocks will have on the economy and when they will occur. While climate shocks have negative effects on humans and nature, their impact on the economy is complex due to factors such as differences in countries' economic structures and varying levels of climate sensitivity. In Turkey, average temperatures have been above the global average in recent years, accompanied by irregular rainfall. Extreme weather events, exacerbated by the intensification of climate change, are causing significant losses to the Turkish economy. In this study, in order to determine the effects of climate shocks on monetary policy in Turkey, the climate variable index, temperature, precipitation rate, PM2.5 (air pollution), dollar exchange rate, industrial production index, bank loans, interest rates and inflation variables were used to analyse monthly data for the period 2005:1-2024: 12 period. The results indicate that climate shocks do not directly affect monetary policy through the interest rate channel but negatively impact monetary policy transmission mechanisms via bank loans. This finding is consistent with previous studies that have identified Turkey's sensitivity to climate shocks and their negative impact on monetary policy transmission mechanisms.