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...

In this paper we analyze a hybrid small-scale New-Keynesian model with an arbitrary frequency of the agents’ synchronized decision making. We study the impact of various demand and supply shocks on the dynamics of the model variables. We show that the corresponding impulse-response functions...

This paper argues that, in the presence of nominal wage rigidities, the existence of Rule-of-Thumb agents and price rigidities does not cause a change in the Taylor Principle as suggested by Galí et al. (2004), and that the only rigidity relevant for this result is that faced by Rule-of-Thumb...

This paper examines the importance of monetary disturbances for cyclical fluctuations in real activity and inflation. It employs a novel identification approach which uses the sign of the cross correlation function in response to shocks to assign a structural interpretation to orthogonal...

We examine the effects of extracting monetary policy disturbances with semi-structural and structural VARs, using data generated by a limited participation model under partial accommodative and feedback rules. We find that, in general, misspecification is substantial: short run coefficients...

Recent empirical evidence based on microdata panels indicates the importance of banks' balance sheets for the monetary transmission mechanism. This paper builds a dynamic general equilibrium model to analyse the macroeconomic consequences of changes in the cost of bank capital, and thus the cost...

This paper studies the dynamic behaviour of an economy under different environmental policy regimes in a New Keynesian (NK) model with nominal and real uncertainty. We find the following results: (i) an emissions cap policy is likely to dampen macroeconomic fluctuations; (ii) staggered price...

We study Ramsey monetary policy in a New Keynesian model embodying pollutant emissions and greenhouse gas emissions control policy. We find that the optimal response of inflation to technology shocks is crucially affected by the environmental regime adopted for emissions control

Central banks and financial institutions are now playing their part in promoting environmental sustainability. We incorporate a sustainability-linked monetary policy (SLMP), comprising an interest rate and a collateral constraint responding to carbon emission activity, into a New Keynesian model...

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...