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Examining the non-linear effects of monetary policy on carbon emissions

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  • Wu, Junwei
  • Yang, Cunyi
  • Chen, Li

Abstract

We ask whether monetary policy plays a role in a nation’s carbon emission and how the effects vary across countries. Using a country panel covering annual data from 2000-2019 and applying the PSTR approach, the present paper finds that: (1) there is a nonlinear and positive association between money supply level and carbon emission; (2) the effect of monetary policy on carbon emission is weaker for countries with higher human development levels or moderate manufacturing shares of GDP, indicating that these countries are more environmentally efficient in implementing monetary policy; (3) countries with heavy manufacturing shares and/or low human development level should be cautious when carrying out economic stimulating, since such stimulating comes at higher costs of the environment. The analysis in the paper can serve as a gauge for environment-concerned central bankers when making monetary decisions and designing green monetary policy.

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  • Wu, Junwei & Yang, Cunyi & Chen, Li, 2024. "Examining the non-linear effects of monetary policy on carbon emissions," Energy Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:eneeco:v:131:y:2024:i:c:s0140988323007041
    DOI: 10.1016/j.eneco.2023.107206
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