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Greening monetary policy

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  • Schoenmaker, Dirk

Abstract

Central banks look at climate related risks at the financial stability side. Should they also take carbon intensity of assets into account at the monetary policy side? After reviewing the central bank mandate, the paper proposes a tilting approach to steer the Eurosystem’s asset and collateral framework towards low carbon assets. We find that a modest tilting approach could reduce carbon emissions in the Eurosystem’s corporate and bank bond portfolio by over 40 per cent. It could also lower the cost of capital of low carbon companies in comparison with high carbon companies by 4 basis points. Our findings suggest that such a low carbon allocation can be done without undue interference with the transmission mechanism of monetary policy. Price stability, the primary objective, is, and should remain, the priority of the Eurosystem.

Suggested Citation

  • Schoenmaker, Dirk, 2019. "Greening monetary policy," CEPR Discussion Papers 13576, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13576
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy; Assets; Collateral; Carbon emissions; Cost of capital;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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