Is the Green Transition Inflationary?

Marco Del Negro, Julian di Giovanni and Keshav Dogra

No 17906, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a multisector New Keynesian model to analyze the macroeconomic effects of carbon taxes, and show that they generate an inflation-output tradeoff whose size depends on the relative price flexibility of the sectors most affected (directly or indirectly) by the tax. When calibrated to U.S. input-output data and sectoral heterogeneity in emissions and price stickiness, the model matches empirical responses of price indices to an energy shock. A $100/metric ton CO2 tax substantially increases inflation if accommodated; curtailing this increase requires a prolonged contraction. Propagation via production linkages plays a key role.

Keywords: Green; transition (search for similar items in EconPapers)
JEL-codes: E12 E31 E52 Q54 (search for similar items in EconPapers)
Date: 2023-02
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Working Paper: Is the Green Transition Inflationary? (2023)
Working Paper: Is the Green Transition Inflationary? (2023)
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