On the Green Interest Rate

Nicholas Muller

No 28891, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper demonstrates how a central bank might operationalize an expanded role inclusive of managing risks from environmental pollution. The analysis introduces the green interest rate (rg) which depends on temporal changes in the pollution intensity of output. This policy instrument reallocates consumption from periods when output is pollution intensive to when output is cleaner. In economies on a cleaning-up path, rg exceeds r*. For those growing more polluted, rg is less than r*. In the U.S. economy from 1957 to 2016, rg exceeded r* by 50 basis points. Federal environmental policy reversed the orientation between rg and r*.

JEL-codes: E21 E43 E63 Q51 Q53 Q54 Q56 Q58 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-ene, nep-env, nep-mac, nep-mon and nep-reg
Note: EEE ME
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