Green Lending

Manthos Delis and Maria Iosifidi

MPRA Paper from University Library of Munich, Germany

Abstract: We develop a model of green lending to study its implications for monetary policy and environmental regulation. Banks finance firms’ brown and/or green projects. The costs of brown projects increase with rising regulatory stringency or when endogenous monetary policy affects the cost of funds. Both policies can elevate the equilibrium share of green lending, resulting in greener output. Our findings remain consistent when we introduce central banks with an explicit green objective (e.g., differential interest rates based on project type), forward-looking bank behavior, and adjustment costs. Additionally, we demonstrate the relative impacts of regulatory and monetary persistent regime changes.

Keywords: Green lending; Green monetary policy; Environmental regulation (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 Q50 (search for similar items in EconPapers)
Date: 2025-06-25
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:125118

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