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Toward a green economy: the role of central bank's asset purchases

Alessandro Ferrari () and Valerio Nispi Landi ()

No 1358, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In a DSGE model, we study the effectiveness of a Green QE, i.e. a program of green-asset purchases by the central bank, along the transition to a carbon-free economy. The model is characterized by green firms that produce using a clean technology and brown firms that pollute but they can pay a cost to abate emissions. The transition is driven by an emission tax. We analyze the evolution of macroeconomic variables along the transition and we compare different versions of Green QE. We show two main findings, in our baseline calibration, where the green and the brown goods are imperfect substitutes. First, Green QE helps to further reduce emissions along the transition, but its quantitative impact on the stock of pollution is small. Second, we find the largest effects when the central bank invests in green assets in the early stage of the transition. Moreover, we highlight that the elasticity of substitution between the green and the brown good is a crucial parameter: if the goods are imperfect complements (an elasticity lower than one), Green QE raise emissions.

Keywords: central bank; monetary policy; quantitative easing; climate change (search for similar items in EconPapers)
JEL-codes: E52 E58 Q54 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-ene, nep-env, nep-fdg, nep-mac and nep-mon
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