“Green” fiscal policy measures and nonstandard monetary policy in the euro area

Anna Bartocci, Alessandro Notarpietro and Massimiliano Pisani

Economic Modelling, 2024, vol. 136, issue C

Abstract: The paper builds a two-region New Keynesian model with a complex energy production sector. It is calibrated to the euro area (EA) and the rest of the world. It simulates the gradual introduction of a carbon tax in the EA and finds recessionary and disinflationary effects. When green energy is subsidized and labor taxes are reduced, the recession becomes much smaller. As green fiscal policy is disinflationary in the model, assuming a binding effective lower bound on the monetary policy rate may reduce these positive effects. This can be prevented by allowing the central bank to purchase long-term sovereign bonds for monetary policy reasons.

Keywords: Carbon tax; Dynamic general equilibrium model; Effective lower bound; Euro area; Fiscal policy; Monetary policy (search for similar items in EconPapers)
JEL-codes: D58 E52 E62 Q43 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: "Green" fiscal policy measures and non-standard monetary policy in the euro area (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:136:y:2024:i:c:s0264999324000993

DOI: 10.1016/j.econmod.2024.106743

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