Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222592 
Year of Publication: 
2020
Series/Report no.: 
Economics Working Paper Series No. 20/337
Publisher: 
ETH Zurich, CER-ETH - Center of Economic Research, Zurich
Abstract: 
We use a dynamic general equilibrium model to study a climate-oriented monetary policy in the form of emission-based interest rates set by the central bank. Liquidity costs of banks increase with the emission intensity of their asset portfolio, leading banks to favor low-carbon assets and to improve the financing conditions for clean sectors. We show that such a monetary policy supports the decarbonization of the economy and reduces climate damage, as more resources are channeled to low-carbon sectors and incentives to adopt cleaner technologies increase across all sectors. We illustrate these effects by calibrating our model to data for the Euro Area.
Subjects: 
climate change
monetary policy
banks
innovation
financial stability
JEL: 
E42
E52
E58
O44
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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