Monetary and financial policies for an ecological transition: An overview of central banks actions and some reflections on post-Keynesian insights

Central bankers across the world have recently acknowledged that the physical impacts of climate change, just like the sudden and disorderly transition to a low-carbon economy, could create systemic financial risks ("Green Swans"). In order to manage these climate-related risks within the remit of their price and financial stability mandates, some central banks have started to explore climate-related prudential and monetary policies. While some scholars and civil society members call for greater efforts from central banks, including actions that would go beyond their existing mandates (e.g. 'green' quantitative easing), fewer have questioned the strategy of relying almost exclusively on central banks to address climate change. In this context, insights from post-Keynesian theory will be critical to factor in the inability of monetary and financial policies to generate a structural economic change, and the need for a much larger role for fiscal policy. This chapter therefore highlights how post-Keynesian theory can help manage climate-related systemic risks, but also why mitigating climate change and other ecological risks requires considering new questions (such as the potential limits to economic growth and the need for new institutional arrangements to govern our environmental commons) which still largely escape the post-Keynesian toolbox. Indeed, as we enter the Anthropocene, post-Keynesian theory will be useful only to the extent that it can contribute to building an analytical framework tailored to the new ecological reality.