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Financial Intermediation and Climate Change in a Production and Investment Network Model for the Euro Area

Author

Listed:
  • Patrick Gruning

    (Latvijas Banka)

  • Zeynep Kantur

    (Baskent University)

Abstract

This paper introduces financial intermediaries, who engage in lending to firms for investments and buying public bonds issued by the government, and unconventional monetary policy in the form of quantitative easing or tightening into a rich New- Keynesian multi-sector E-DSGE model with production and investment networks. Due to the strong input-output linkages between sectors, almost all policies are found to be not effective in facilitating a green transition. The policies considered are sector-specific bank regulation policies, unconventional monetary policies, various carbon tax revenue recycling schemes, public green capital investment, and sector- specific investment tax/subsidy policies. Only if carbon tax revenues are used to build public green capital, thereby boosting productivity of the green sectors, the trade-off between achieving positive economic growth and reducing carbon emissions is fully resolved.

Suggested Citation

  • Patrick Gruning & Zeynep Kantur, 2024. "Financial Intermediation and Climate Change in a Production and Investment Network Model for the Euro Area," Working Papers 2024/06, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:202406
    as

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    File URL: https://datnes.latvijasbanka.lv/papers/WP_6-2024.pdf
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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