Is Monetary Policy Transmission Green?

Inessa Benchora, Aurélien Leroy and Louis Raffestin

Bordeaux Economics Working Papers from Bordeaux School of Economics (BSE)

Abstract: This article examines the impact of monetary policy (MP) on firms’ stock prices across CO2 emissions. We provide a theoretical model in which green firms are less sensitive to MP shocks than brown firms, because they are less exposed to transition risk and provide non-pecuniary utility to investors. We test this prediction by using a panel event-study regression approach on 857 US firms between 2010 and 2019. We find robust evidence that firms with high carbon intensity are significantly more affected by policy rate surprises. The sensitivity premium of brown firms remains significant when controlling for classic sources of MP heterogeneity, is persistent, and increases with climate awareness. Our results suggest that the market neutrality principle guiding the implementation of monetary policy could induce a bias toward brown firms.

Keywords: Climate change; Transition risk; Carbon emissions; Monetary policy shocks; Risk premia. (search for similar items in EconPapers)
JEL-codes: E44 G12 G15 O13 Q49 Q54 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cba, nep-ene, nep-env, nep-mon and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:grt:bdxewp:2023-08

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