 Climate change and Carbon policy: A story of optimal green macroprudential and capital flow managementAnh H. Le Energy Economics, 2025, vol. 146, issue C Abstract: This paper investigates the macro-financial impact of carbon policy and the role of reserve requirements in managing climate-related transition risks. Empirical evidence shows that carbon policy shocks lead to a 0.7% output loss, a 0.3% rise in inflation, financial instability, and sectoral reallocation effects. Using a macro-financial DSGE model with environmental features, the model predicts that a 40% GHG emissions reduction results in a 0.7% output loss, while achieving net-zero emissions over 30 years causes a 2.7% medium-term output loss. The analysis underscores the banking sector’s amplified role during the transition and the benefits of pre-announced carbon policies in reducing inflation volatility by 0.2%. Utilizing a heterogeneous approach with macroprudential tools, I find that optimal macroprudential tools can mitigate the output loss by 0.1% and investment loss by 0.5%. Importantly, my work highlights the use of capital flow management in the green transition. Keywords: Climate change; Environmental policy; Optimal policy; Transition risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:146:y:2025:i:c:s0140988325003251 DOI: 10.1016/j.eneco.2025.108501 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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