Sustainable Finance

Yoshihiro Hamaguchi ()
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Yoshihiro Hamaguchi: Hannan University

Chapter Chapter 5 in Sustainable Development in Economic Growth Theory, 2025, pp 55-66 from Springer

Abstract: Abstract In Chap. 4 , the variety expansion model with a preference for variety and pollution emissions is introduced, along with monetary policy through endogenous money supply and interest rate manipulation. Under the k% rule, the monetary authority supplies money to households and redistributes seigniorage income to them. Households subject to the cash-in-advance (CIA) constraint spend money on goods and lend it to R&D firms. R&D firms subject to the CIA constraint use the borrowed funds to pay researchers’ wages. In an environmental tax, a reduction in the nominal interest rate increases the real money supply, as the Fisher effect causes deflation. Therefore, there is an increase in lending. As the demand for labour in the R&D sector rises, there is a labour shift from the goods to the R&D sector. As economic growth increases, pollution is reduced due to a decrease in production and sustainable development is achieved. This nominal interest rate has an inverted U-shaped effect on welfare, however, it inhibits the growth-enhancing effect of environmental taxes. Depending on the emission allowance level and the interest rate, there is a trade-off, win–win or lose-lose relationship between sustainable development and the development of financial markets.

Keywords: CIA constraints; Interest rate manipulation; Fisher effect; Deflation; Sustainable finance (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-96-7639-2_5

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DOI: 10.1007/978-981-96-7639-2_5

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