Modelling Monetary and Fiscal Policy to Achieve Climate Goals

Yener Altunbas, Xiaoxi Qu and John Thornton
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Xiaoxi Qu: Bangor University

No 310, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We present and estimate a Bernanke et al. (1999)-type dynamic general equilibrium model modified to allow the authorities to use monetary and fiscal policy to shape bank behavior in support of climate goals. In the model, central bank refinancing and reserve requirements are employed to support bank lending for environmentally friendly projects at lower rates of interest than for other projects. At the same time, fiscal policy supports green bank lending through loan guarantees, which also reduces the relative cost of borrowing by green firms. Under reasonable parameters of the model, rediscount lending is shown to be the most effective policy tool for directing bank lending to support climate goals

Pages: 53 pages
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-ene, nep-env, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:310

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