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Greening monetary policy

Dirk Schoenmaker ()

No 13576, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Central banks look at climate related risks at the financial stability side. Should they also take carbon intensity of assets into account at the monetary policy side? After reviewing the central bank mandate, the paper proposes a tilting approach to steer the Eurosystem's asset and collateral framework towards low carbon assets. We find that a modest tilting approach could reduce carbon emissions in the Eurosystem's corporate and bank bond portfolio by over 40 per cent. It could also lower the cost of capital of low carbon companies in comparison with high carbon companies by 4 basis points. Our findings suggest that such a low carbon allocation can be done without undue interference with the transmission mechanism of monetary policy. Price stability, the primary objective, is, and should remain, the priority of the Eurosystem.

Keywords: Assets; Carbon Emissions; Collateral; cost of capital; monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 Q01 Q52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-mac, nep-mon and nep-pke
Date: 2019-03
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