Climate Risks and Monetary Policy: From Blind Spots to Mandate
Preservation

Rhea Ajmera

doi:10.46609/IJSSER.2025.v10i10.054

Title: Climate Risks and Monetary Policy: From Blind Spots to Mandate Preservation
Authors: Rhea Ajmera
Journal: International Journal of Social Science and Economic Research (IJSSER) ISSN: 2455-8834 Volume: 10 Issue: 10 Publication Date: October 2025 DOI: 10.46609/IJSSER.2025.v10i10.054
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Rhea Ajmera Princeton Day School, Princeton NJ, USA
MLA 8 Ajmera, Rhea. "Climate Risks and Monetary Policy: From Blind Spots to Mandate Preservation." Int. j. of Social Science and Economic Research, vol. 10, no. 10, Oct. 2025, pp. 5403-5415, doi.org/10.46609/IJSSER.2025.v10i10.054. Accessed Oct. 2025. APA 6 Ajmera, R. (2025, October). Climate Risks and Monetary Policy: From Blind Spots to Mandate Preservation. Int. j. of Social Science and Economic Research, 10(10), 5403-5415. Retrieved from https://doi.org/10.46609/IJSSER.2025.v10i10.054 Chicago Ajmera, Rhea. "Climate Risks and Monetary Policy: From Blind Spots to Mandate Preservation." Int. j. of Social Science and Economic Research 10, no. 10 (October 2025), 5403-5415. Accessed October, 2025. https://doi.org/10.46609/IJSSER.2025.v10i10.054.
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ABSTRACT: Climate change has emerged as a systemic macroeconomic risk with direct implications for monetary policy. This paper argues that climate risks – whether physical, transition, or social – propagate through output, labor markets, inflation, fiscal balances, trade, financial stability and distribution. Yet, standard macroeconomic models continue to treat climate shocks as temporary supply disturbances. This creates three blind spots – the persistence of inflationary pressures, structural effects on potential output and neutral interest rate, and impaired policy transmission through stressed financial intermediaries. To address these gaps, we propose integrating climate risk into monetary policy through the three pillars – mandates, models and instruments. Building on recent literature on green quantitative easing, credit guidance, macroprudential overlaps, and systemic risk warnings, we argue that integration is not mission creep but mandate preservation. The future credibility of monetary policy will depend on central banks’ climate competence: their ability to safeguard stability in a warming world.

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