The Impact of Monetary Policy and Climate Change on Cambodia’s GDP Growth: A VAR Analysis

This study examines the complex relationship between climate shocks, monetary policy, and Cambodia’s GDP growth using IMF data from 1996–2022 with econometric models such as Ordinary Least Squares(OLS) and Vector Autoregression (VAR) model. The findings reveal that climate shocks affect short-term rise in GDP growth, largely due to early adaptation efforts and temporary boosts in agricultural activities. However, these effects are not sustained. GDP responds positively to climate shocks for a short run but diminishes and as negative effects in a long run, reflecting the vulnerability of Cambodia’s agriculture-based economy to repeated or severe climatic events. This means that GDP rises up in a short run before declining, underscoring the temporary nature of such benefits. Monetary policy, supported by a managed-float exchange rate and Central Bank interventions, has stabilized growth, yet its impact is constrained by high dollarization, which limits control over interest rates and money supply. Expanding the use of the Riel would enhance policy flexibility and support climate adaptation. Overall, monetary policy alone cannot secure resilience; structural reforms in agriculture, financial systems, and climate-resilient infrastructure are essential. Data limitations, particularly the underrepresentation of the informal sector, remain an important consideration.