Climate vulnerability and economic performance in Africa under the moderating influence of monetary policy

Climate change is now considered a threat to human existence and socioeconomic development in the twenty-first century due to its detrimental impact on the planet and human welfare. In combating this menace and to reduce greenhouse gas emissions, several agreements and protocols have been signed. Moreover, the function of central banks through monetary policy actions cannot be overstated. This study examines the role of monetary policy on the nexus between climate change and economic growth in Africa. Using panel data of 53 African countries from 2000 to 2023, Driscoll and Kraay fixed effect, and IV-GMM techniques, the study discovers the following: (1) climate change is detrimental to the economic growth of African countries; (2) monetary authorities can leverage interest rate policies to stimulate investment, promote resilience-building infrastructure, and support affected industries in the face of climate-induced economic disruptions; (3) climatic conditions of Africa countries matter on monetary policy, as the impact is more effective in countries with high temperature; (4) high-income countries in Africa are able to enjoy the benefit of monetary policy compared to low-income countries. The study recommends that African central banks incorporate climate risks and sustainability goals into their monetary policy frameworks.