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Monetary policy, neutrality and the environment

Joao Ricardo Faria, Peter McAdam and Bruno Viscolani

No 2573, Working Paper Series from European Central Bank

Abstract: We study the interaction between monetary and fiscal policies in a Ramsey-Sidrauski model augmented with environmental capital. Equilibrium solutions are studied through the “Green Golden Rule”. Despite the non-separability of money in utility and intertemporally non-separable preferences, money is environmentally neutral. Policy impacts the environment via the marginal rate of transformation rather than the marginal rate of substitution between consumption and environment. Fiscal policies, lump sum and distortionary, under a balanced budget, are also environmentally non-neutral. Only under a non-balanced budget, when deficits are monetized, is money environmentally non-neutral. In alternative approaches (Cash-in-Advance, Transactions Costs), money is environmentally non-neutral. JEL Classification: E52, E62, H23

Keywords: cash in advance; Chichilnisky et al. conjecture; environmental capital; Friedman rule; green golden rule; Ramsey-Sidrauski; transactions costs (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-cba, nep-env, nep-isf, nep-mac, nep-mon and nep-upt
Note: 50336
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212573

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