Green Monetary Policy and Operations: Scope and Design

Leef H. Dierks ()
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Leef H. Dierks: Lübeck University of Applied Sciences, Germany

Working Papers from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: Climate change, political measures to reduce greenhouse gas emissions and the transition to a carbon-neutral economy have a significant economic impact. In addition to a dampening effect on aggregate demand and supply, the internalisation of negative externalities will likely in-crease production costs and – in the case of a pass-through to consumers – ultimately the in-flation rate. To the extent that this affects the (SEACEN member) central bank’s objectives of price and financial stability, climate-fuelled economic developments might impact monetary policy – with several central banks resorting to a Green Monetary Policy. This paper identifies its common elements and argues that event though fiscal policies are first best, monetary poli-cy adapts where climate risks impair price and/or financial stability over the policy horizon. Monetary policy has a subsidiary role that operates through its mandate; where climate risks affect inflation and transmission, instruments may be adapted without replacing fiscal policy. The greatest contribution SEACEN member central banks can make to the green transfor-mation, however, is to ensure price stability.

Keywords: green monetary policy; green finance; financial stability; market neutrality; tilting (search for similar items in EconPapers)
JEL-codes: E31 E42 E52 E58 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-cba, nep-ene, nep-env and nep-mon
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