Environmental Policy and Macroeconomic Dynamics in a New Keynesian Model

Barbara Annicchiarico () and Fabio Di Dio ()

No 286, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper studies the dynamic behaviour of an economy under different environmental policy regimes in a New Keynesian (NK) model with nominal and real uncertainty. We find the following results: (i) an emissions cap policy is likely to dampen macroeconomic fluctuations; (ii) staggered price adjustment alters significantly the performance of the environmental policy regime put in place, especially with an emissions intensity target; (iii) welfare tends to be higher with a tax on emissions when prices are sticky; (iv) the optimal policy response to inflation is found to be very strong as long as welfare is not affected by environmental quality and the environmental policy does not consist in an emissions cap.

Keywords: New Keynesian Model; Environmental Policy; Macroeconomic Dynamics; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E32 E50 Q58 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2013-09-30, Revised 2013-09-30
New Economics Papers: this item is included in nep-env, nep-mac and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: Environmental policy and macroeconomic dynamics in a new Keynesian model (2015)
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