Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229114
Authors: 
Ferrari, Alessandro
Nispi Landi, Valerio
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2500
Abstract: 
We study the effects of a temporary Green QE, defined as a policy that temporarily tilts the central bank's balance sheet toward green bonds, i.e. bonds issued by firms in non-polluting sectors. To this purpose, we merge a standard DSGE framework with an environmental model. In our model, detrimental emissions produced by the brown sector increase the stock of pollution. We find that the imperfect substitutability between green and brown bonds is a necessary condition for the effectiveness of Green QE. Under the assumption of imperfect substitutability, we point out the following results. A temporary Green QE is an effective tool in mitigating detrimental emissions. However, Green QE has limited effects in reducing the stock of pollution, if pollutants are slow-moving variables such as atmospheric carbon. The welfare gains of Green QE are positive but small. Welfare gains increase if the flow of emissions negatively affects also the utility of households.
Subjects: 
Central Bank
Monetary Policy
Quantitative Easing
Climate Change
JEL: 
E52
E58
Q54
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4446-5
Document Type: 
Working Paper

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