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Green stocks and monetary policy shocks: Evidence from Europe

Author

Listed:
  • Bauer, Michael D.
  • Offner, Eric A.
  • Rudebusch, Glenn D.

Abstract

Policymakers and researchers, notably in Europe, have expressed concerns that the low-carbon transition may be inadvertently delayed by higher global interest rates. To examine whether green investment is especially sensitive to interest rate increases, we consider the effect of unanticipated monetary policy changes on the equity prices of green and brown European firms. We find that brown firms, measured in terms of carbon emission levels or intensities, are more negatively affected than green firms by tighter monetary policy. This heterogeneity is robust to different monetary policy surprises, emission measures, econometric methods, and sample periods, and it is not explained by other firm characteristics. This evidence suggests that higher interest rates may not skew investment away from a sustainable transition.

Suggested Citation

  • Bauer, Michael D. & Offner, Eric A. & Rudebusch, Glenn D., 2025. "Green stocks and monetary policy shocks: Evidence from Europe," European Economic Review, Elsevier, vol. 177(C).
    • Handle: RePEc:eee:eecrev:v:177:y:2025:i:c:s0014292125000947
    DOI: 10.1016/j.euroecorev.2025.105044
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    More about this item

    Keywords

    Monetary transmission; Carbon premium; ESG; Climate finance;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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