Monetary policy, neutrality and the environment
Joao Ricardo Faria,
Peter McAdam and
No 2573, Working Paper Series from European Central Bank
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)
New Economics Papers: this item is included in nep-cba, nep-env, nep-isf, nep-mac, nep-mon and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212573
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