In this paper, we discuss how environmental damage and emission reduction policies affect the conduct of monetary policy in a two-sector (clean and dirty) dynamic stochastic general equilibrium model. In particular, we examine the optimal response of the interest rate to changes in sectoral...

This article discusses the need for climate change risk mitigation and why it is not the responsibility of Central Banks to mitigate climate change risk. The paper argues that the responsibility for managing climate change risk should lie with elected officials, other groups and institutions but...

Recent research in financial economics has shown that rare large disasters have the potential to disrupt financial sectors via the destruction of capital stocks and jumps in risk premia. These disruptions often entail negative feedback effects on the macroeconomy. Research on disaster risks has...

Climate change has become one of the most prominent concerns globally. In this paper, we study the transition risk of greenhouse gas emission reduction in structural environmental-macroeconomic DSGE models. First, we analyze the uncertainty in model prediction on the effect of unanticipated and...

We study the implications of climate change and the associated mitigation measures for optimal monetary policy in a canonical New Keynesian model with climate externalities. Provided they are set at their socially optimal level, carbon taxes pose no trade-offs for monetary policy: it is both...

Central banks worldwide are stepping up actions in relation to climate change and taking on an increasingly important role in supporting the energy transition. Given the prominent role that central banks play in the financial markets and in influencing financing conditions, they can act as a...

Climate change has profound effects not only for societies and economies, but also for central banks’ ability to deliver price stability in the future. This paper starts by documenting why climate change matters for monetary policy: it impacts the economic variables relevant to setting the...

This paper analyses the implications of climate change for the conduct of monetary policy in the euro area. It first investigates macroeconomic and financial risks stemming from climate change and from policies aimed at climate mitigation and adaptation, as well as the regulatory and fiscal...

What is the effect of climate policies on inflation and economic activity? Answering this question is critical for central banks trying to achieve price stability. This paper studies the experience from existing carbon taxes in Canada and Europe, introduced over the last 30 years. Based on two...