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Toward a Green Economy: The Role of the Central Bank’s Asset Purchases

Author

Listed:
  • Alessandro Ferrari

    (European Central Bank)

  • Valerio Nispi Landi

    (Bank of Italy)

Abstract

We use a DSGE model to study the effectiveness of greenasset purchases by the central bank (Green QE), along the transition to a carbon-free economy driven by an emission tax. In our baseline calibration, where green and brown goods are imperfect substitutes, Green QE helps to further reduce emissions, but the quantitative impact on pollution is small; the effects become slightly larger if the purchases are carried out in the early stage of the transition. The elasticity of substitution between green and brown goods is a crucial parameter: if the goods are imperfect complements, Green QE raises emissions.

Suggested Citation

  • Alessandro Ferrari & Valerio Nispi Landi, 2023. "Toward a Green Economy: The Role of the Central Bank’s Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 19(5), pages 287-340, December.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:5:a:7
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    References listed on IDEAS

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    1. Ferrari Minesso, Massimo & Pagliari, Maria Sole, 2023. "No country is an island. International cooperation and climate change," Journal of International Economics, Elsevier, vol. 145(C).
    2. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
    3. Danilo Liberati & Giuseppe Marinelli, 2022. "Everything you always wanted to know about green bonds (but were afraid to ask)," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistics for Sustainable Finance, volume 56, Bank for International Settlements.
    4. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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