The climate crisis meets the ECB: tinkering around the edges or paradigm shift?

Yannis Dafermos
Additional contact information
Yannis Dafermos: Department of Economics, SOAS University of London

No 264, Working Papers from Department of Economics, SOAS University of London, UK

Abstract: The European Central Bank (ECB) has recently incorporated climate considerations into its operations. In this paper, I assess whether the ECB’s approach is consistent with the challenges of the climate crisis era. I first identify three transformative implications of the climate crisis for central banking. These are that central banks (i) are becoming less able to control inflation via monetary policy tools, (ii) can no longer ignore their responsibility to support decarbonisation, and (iii) cannot rely on traditional risk exposure approaches to prevent financial instability that stems from physical risks. I then analyse to what extent these implications are reflected in the ECB climate actions and plans, showing that there is a very significant gap between the ECB’s 'tinkering around the edges' approach and the central banking challenges posed by the climate crisis. Using post-Keynesian, critical macro-finance and political economy perspectives, I develop the theoretical underpinnings of a climate-aligned central banking paradigm and analyse the implications of this paradigm for the ECB policy toolbox and mandate. I also identify the ideological and political economy factors that prevent the ECB from undergoing a climate paradigm shift.

Keywords: European Central Bank; monetary policy; financial stability; inflation; climate crisis (search for similar items in EconPapers)
JEL-codes: E58 Q54 (search for similar items in EconPapers)
Pages: 21
Date: 2024-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-ene, nep-env, nep-hme, nep-mon and nep-pke
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.soas.ac.uk/sites/default/files/2024-07/economics-wp264.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:soa:wpaper:264

Access Statistics for this paper

More papers in Working Papers from Department of Economics, SOAS University of London, UK Contact information at EDIRC.
Bibliographic data for series maintained by Chandni Dwarkasing ().