Does monetary policy fuel energy consumption across the world? Focus on inflation targeting

Christophe Martial Mbassi, Cyrille Michel Samba and Thérèse Elomo Zogo

Energy Economics, 2025, vol. 145, issue C

Abstract: This paper contributes to the ongoing discussion about “ecological macroeconomics”. Specifically, we explore the effects of monetary policy, namely inflation targeting (IT), on energy consumption in a global sample of 145 countries between 1980 and 2017. We use various standard panel data approaches such as fixed effects (within) estimator, and two-step system GMM among others, followed by propensity score matching to address the self-selection bias inherent in IT adoption. Our results show that IT significantly increases energy consumption, and this effect goes through the macroeconomic volatility and FDI channels. Moreover, improvements in the institutional framework mitigate the effect of IT. The results also highlight the importance of central bank experience given that, over time, IT significantly reduces energy consumption. Finally, we find that the effect of IT on renewable energy consumption is not robust. Overall, our results point out the need to have environmental considerations in designing macroeconomic policies to foster the ecological transition.

Keywords: Monetary policy; Inflation targeting; Energy consumption; Ecological transition; Macroeconomic volatility; FDI (search for similar items in EconPapers)
JEL-codes: E3 E58 F21 O13 Q41 Q43 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:145:y:2025:i:c:s0140988325002415

DOI: 10.1016/j.eneco.2025.108417

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