Deploying green macroprudential policies to promote environmental health: new findings from panel VAR for international database

In the context of balancing environmental sustainability with economic growth, green macroprudential policies are anticipated to play an important part in ensuring sustainable development. Our research utilizes a Panel Vector Autoregressive (PVAR) model to investigate the connection between green macroprudential policies and environmental performance efficiency from 35 countries between 2005 and 2021. Our results show that green macroprudential policies enhance environmental performance efficiency in the short-term. Additionally, the responses of green macroprudential policies and the environmental performance index to trade share shocks begin positively before bouncing back and stabilizing by the third period. In contrast, trade share shocks show negative trends in the first two years when influencing these variables. These observations emphasize the intricate relationship between environmental regulations and economic factors, suggesting that while green macroprudential policies are adequate for the environment at first, their long-term impact is constrained by deeper systemic and structural issues. This underscores the need for more robust, well-crafted policies that balance sustainability and economic growth, ensuring that green macroprudential measures are sustainable enough to support long-term environmental and financial goals.