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Realising Central Banks’ Climate Ambitions Through Financial Stability Mandates

Author

Listed:
  • Paola D’Orazio

    (Ruhr-Universität Bochum)

  • Lilit Popoyan

    (University of Naples “Parthenope”)

Abstract

This paper discusses how financial stability governance has evolved and how central banks and financial regulators are coping with the threats posed by climate uncertainty, providing an overview of G20 countries’ green central banking experiences in the past 20 years. The analysis shows that most central banks realise their climate ambitions through financial stability mandates, leaving the monetary stability mandate unaffected. Considering the debate on market neutrality, the concerns on the risk of overstretching the central banks’ mandate, violation of Tinbergen’s principle and threats posed to central banks’ independence, the provided evidence reveals a mismatch between the observed policy practice and its theoretical underpinnings. Drawing on these findings, we argue that effective green central banking governance should be based on a synthesis between monetary and macroprudential policymaking.

Suggested Citation

  • Paola D’Orazio & Lilit Popoyan, 2022. "Realising Central Banks’ Climate Ambitions Through Financial Stability Mandates," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(2), pages 103-111, March.
    • Handle: RePEc:spr:intere:v:57:y:2022:i:2:d:10.1007_s10272-022-1039-4
    DOI: 10.1007/s10272-022-1039-4
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    References listed on IDEAS

    as
    1. Goodhart, Charles A.E. & Huang, Haizhou, 2005. "The lender of last resort," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1059-1082, May.
    2. Popoyan, Lilit & Napoletano, Mauro & Roventini, Andrea, 2017. "Taming macroeconomic instability: Monetary and macro-prudential policy interactions in an agent-based model," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 117-140.
    3. Popoyan, Lilit & Napoletano, Mauro & Roventini, Andrea, 2020. "Winter is possibly not coming: Mitigating financial instability in an agent-based model with interbank market," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    4. Jens van ’t Klooster & Clément Fontan, 2020. "The Myth of Market Neutrality: A Comparative Study of the European Central Bank’s and the Swiss National Bank’s Corporate Security Purchases," New Political Economy, Taylor & Francis Journals, vol. 25(6), pages 865-879, September.
    5. Emanuele Campiglio & Yannis Dafermos & Pierre Monnin & Josh Ryan-Collins & Guido Schotten & Misa Tanaka, 2018. "Climate change challenges for central banks and financial regulators," Nature Climate Change, Nature, vol. 8(6), pages 462-468, June.
    6. Lilit Popoyan, 2020. "Macroprudential Policy: a Blessing or a Curse?," Review of Economics and Institutions, Università di Perugia, vol. 11(1-2).
    7. D’Orazio, Paola & Popoyan, Lilit, 2019. "Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?," Ecological Economics, Elsevier, vol. 160(C), pages 25-37.
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    11. Batten,, Sandra & Sowerbutts, Rhiannon & Tanaka, Misa, 2016. "Let’s talk about the weather: the impact of climate change on central banks," Bank of England working papers 603, Bank of England.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    E44; E50; E58;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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