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Environmental policy and macroeconomic dynamics in a new Keynesian model

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  • Annicchiarico, Barbara
  • Di Dio, Fabio

Abstract

This paper studies the dynamic behavior of an economy under different environmental policy regimes in a New Keynesian 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 adjustment alters significantly the performance of the environmental policy regime put in place; (iii) the optimal environmental policy response to shocks is strongly influenced by the degree to which prices adjust and by the monetary policy reaction.

Suggested Citation

  • Annicchiarico, Barbara & Di Dio, Fabio, 2015. "Environmental policy and macroeconomic dynamics in a new Keynesian model," Journal of Environmental Economics and Management, Elsevier, vol. 69(C), pages 1-21.
  • Handle: RePEc:eee:jeeman:v:69:y:2015:i:c:p:1-21
    DOI: 10.1016/j.jeem.2014.10.002
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    More about this item

    Keywords

    New Keynesian model; Environmental policy; Macroeconomic dynamics; Monetary policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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