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Climate change and monetary policy in the euro area

Francesco Drudi, Emanuel Moench, Cornelia Holthausen, Pierre-François Weber, Gianluigi Ferrucci, Ralph Setzer (), Bernardino Adao, Stephane Dees, Spyros Alogoskoufis, Mar Delgado-Téllez (), Malin Andersson, Virginia Di Nino, Jana Aubrechtova, Arturo Diez-Caballero, Aristoklis Avgousti, Claudia Duarte, Francesca Barbiero, Angel Estrada (), Lena Boneva, Donata Faccia, Andreas Breitenfellner (), Ivan Faiella, Giovanna Bua, Mátyás Farkas, Maurice Bun, Alessandro Ferrari, Francesco Caprioli, Fabio Fornari, Matteo Ciccarelli, Alberto Fuertes Mendoza, Matthieu Darracq Paries, Pablo Garcia-Sanchez, Alessandro Giovannini, Niki Papadopoulou, Patrick Grüning, Miles Parker, Paolo Guarda, Filippos Petroulakis, Gerbert Hebbink, Anamaria Piloiu, Sarah Jane Hlásková Murphy, Gasper Ploj, Michael Ioannidis, Wolfgang Pointner, Lorenzo Isgro, Alexander Popov, Daniel Kapp, Doris Prammer, Mélissa Kasongo Kashama, Ricardo Queiroz, Paloma Lopez-Garcia, Omar Rachedi, Matija Lozej, Lavinia Rognone, Reamonn Lydon (), Oke Röhe, Otso Manninen, Madelaine Roos, Andrés Manzanares, Simone Russo, Niall McInerney, Daniel Santabárbara, Christoph Meinerding, Guido Schotten, Katri Mikkonen, Beatriz Sotomayor, Alessandro Mistretta, Livio Stracca (), Francesco Mongelli (), Fabio Tamburrini, Carlos Montes-Galdón, Anastasia Theofilakou, Georg Müller, Pinelopi Tsalaporta, Carolin Nerlich, Jan Willem End, Malgorzata Osiewicz, Lia Vaz Cruz, Boris Osorno-Torres, Mark Andreas Weth, Jean-François Ouvrard, Gonzalo Yebes Gomez and Adrian Page
Authors registered in the RePEc Author Service: Pablo Garcia Sanchez

No 271, Occasional Paper Series from European Central Bank

Abstract: This paper analyses the implications of climate change for the conduct of monetary policy in the euro area. It first investigates macroeconomic and financial risks stemming from climate change and from policies aimed at climate mitigation and adaptation, as well as the regulatory and fiscal effects of reducing carbon emissions. In this context, it assesses the need to adapt macroeconomic models and the Eurosystem/ECB staff economic projections underlying the monetary policy decisions. It further considers the implications of climate change for the conduct of monetary policy, in particular the implications for the transmission of monetary policy, the natural rate of interest and the correct identification of shocks. Model simulations using the ECB’s New Area-Wide Model (NAWM) illustrate how the interactions of climate change, financial and fiscal fragilities could significantly restrict the ability of monetary policy to respond to standard business cycle fluctuations. The paper concludes with an analysis of a set of potential monetary policy measures to address climate risks, insofar as they are in line with the ECB’s mandate. JEL Classification: E52, E58, Q54

Keywords: climate change; environmental economics; green finance; monetary policy; sustainable growth economics (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ene, nep-env, nep-isf, nep-mac and nep-mon
Note: 220313
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