Macroeconomic Impacts of Climate Change under NGFS Scenarios and Monetary Policy

This paper examines the environmental and macroeconomic impacts of changes in global value chain (GVC) participation, cross-border externality of carbon emissions, environmental considerations in monetary policy, and international coordination in environmental policy across seven NGFS scenarios. An E-DSGE model analysis shows that i) increased GVC participation, with higher reliance on imported intermediate goods, slows economic growth more significantly in high-pollution regimes, ii) the emphasis on environmental issues in monetary policy has insignificant impact on carbon emissions while increasing macroeconomic volatility to more polluted regimes. These findings suggest that while less stringent environmental policies may offer short-term benefits, these are outweighed by higher long-term transition costs. Therefore, a proactive environmental policy, aimed at achieving a 'Net Zero 2050' scenario, could foster more stable economic conditions. Furthermore, the environmental concerns in monetary policy should be moderated to mitigate potential side effects of indirect interventions on carbon emissions.