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Is the Green Transition Inflationary?

Author

Listed:
  • Del Negro, Marco
  • Di Giovanni, Julian
  • Dogra, Keshav

Abstract

We develop a two-sector New Keynesian model to analyze the inflationary effects of climate policies. Climate policies do not force a central bank to tolerate higher inflation, but may generate a tradeoff between the central bank’s objectives for inflation and real activity. The presence and size of this tradeoff depends on how flexible prices are in the "dirty" and "green" sectors relative to the rest of the economy, and on whether climate policies consist of taxes or subsidies.

Suggested Citation

  • Del Negro, Marco & Di Giovanni, Julian & Dogra, Keshav, 2023. "Is the Green Transition Inflationary?," CEPR Discussion Papers 17906, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17906
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    2. Bettarelli, Luca & Furceri, Davide & Pisano, Loredana & Pizzuto, Pietro, 2025. "Greenflation: Empirical evidence using macro, regional and sectoral data," European Economic Review, Elsevier, vol. 174(C).
    3. Ferrari Minesso, Massimo & Pagliari, Maria Sole, 2023. "No country is an island. International cooperation and climate change," Journal of International Economics, Elsevier, vol. 145(C).
    4. Jean-Guillaume Sahuc & Gauthier Vermandel & Frank Smets, 2024. "The New Keynesian Climate Model," Working papers 977, Banque de France.
    5. Coenen, Günter & Lozej, Matija & Priftis, Romanos, 2024. "Macroeconomic effects of carbon transition policies: An assessment based on the ECB’s New Area-Wide Model with a disaggregated energy sector," European Economic Review, Elsevier, vol. 167(C).
    6. Guido Ascari & Andrea Colciago & Timo Haber & Stefan Wöhrmüller, 2025. "Inequality along the European green transition," Working Papers 830, DNB.
    7. John Aguirre & Alan Ledesma & Fernando Perez & Youel Rojas, 2025. "Economic Activity, Inflation, and Monetary Policy after Extreme Weather Events: ENSO and its Economic Impact on the Peruvian Economy," Working Papers 2025-008, Banco Central de Reserva del Perú.
    8. Hensel, Jannik & Mangiante, Giacomo & Moretti, Luca, 2024. "Carbon pricing and inflation expectations: Evidence from France," Journal of Monetary Economics, Elsevier, vol. 147(C).
    9. Alexandre Chirat & Basile Clerc, 2025. "A “Climate War Economy”? Medium-run Macroeconomic Disequilibrium of the Green Transition," Working Papers 2025-10, CRESE.
    10. Luca Fornaro & Veronica Guerrieri & Lucrezia Reichlin, 2025. "Monetary policy for the green transition," BIS Papers, Bank for International Settlements, number 160, May.
    11. Annicchiarico, Barbara & Di Dio, Fabio & Diluiso, Francesca, 2024. "Climate actions, market beliefs, and monetary policy," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 176-208.
    12. Ahn, JaeBin, 2025. "Greenflation or greensulation? The case of fuel excise taxes and oil price pass-through," Energy Economics, Elsevier, vol. 148(C).
    13. Celso Brunetti & Matteo Crosignani & Benjamin Dennis & Gurubala Kotta & Donald P. Morgan & Chaehee Shin & Ilknur Zer, 2024. "Climate-Related Financial Stability Risks for the United States: Methods and Applications," Economic Policy Review, Federal Reserve Bank of New York, vol. 30(1), pages 1-37, October.
    14. Pablo Garcia & Pascal Jacquinot & ÄŒrt LenarÄ iÄ & Kostas Mavromatis & Niki Papadopoulou & Niki Papadopoulou, 2024. "Green Transition in the Euro Area: Domestic and Global Factors," Working Papers 816, DNB.
    15. Bartocci, Anna & Notarpietro, Alessandro & Pisani, Massimiliano, 2024. "“Green” fiscal policy measures and nonstandard monetary policy in the euro area," Economic Modelling, Elsevier, vol. 136(C).
    16. Yoshihiko Hogen & Yojiro Ito & Kenji Kanai & Naoya Kishi, 2024. "Changes in the Global Economic Landscape and Issues for Japan's Economy," Bank of Japan Working Paper Series 24-E-3, Bank of Japan.
    17. Nerlich, Carolin & Köhler-Ulbrich, Petra & Andersson, Malin & Pasqua, Carlo & Abraham, Laurent & Bańkowski, Krzysztof & Emambakhsh, Tina & Ferrando, Annalisa & Grynberg, Charlotte & Groß, Johannes & H, 2025. "Investing in Europe’s green future - Green investment needs, outlook and obstacles to funding the gap," Occasional Paper Series 367, European Central Bank.
    18. Attílio, Luccas Assis, 2025. "Does energy transition affect domestic inflation?," Energy, Elsevier, vol. 332(C).
    19. Angelico, Cristina, 2024. "The green transition and firms' expectations on future prices: Survey evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 519-543.

    More about this item

    Keywords

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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