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International Transmission of Environmental Policy: A New Keynesian Perspective


  • Giovanni Ganelli


  • Juha Tervala



In this paper we examine the international transmission of environmental policy using a New Keynesian model of the global economy. We first consider the case in which the quality of the environment affects utility, but not productivity. This allows us to look at the trade-off between environmental quality and output. We then consider the case in which the quality of the environment increases productivity but does not affect utility. Our main results show that in both cases a unilateral implementation of a more stringent environmental policy by the domestic country raises foreign welfare under a benchmark parameterization. However, since this policy can have a negative impact on domestic utility but a positive one on world utility, an international coordination problem can arise in the implementation of environmental policy: no country will have an incentive to implement environmental reforms if there is a possibility that its trading partners will do so.

Suggested Citation

  • Giovanni Ganelli & Juha Tervala, 2010. "International Transmission of Environmental Policy: A New Keynesian Perspective," Discussion Papers 58, Aboa Centre for Economics.
  • Handle: RePEc:tkk:dpaper:dp58

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    References listed on IDEAS

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    Cited by:

    1. Tumen, Semih & Unalmis, Deren & Unalmis, Ibrahim & Unsal, D. Filiz, 2016. "Taxing fossil fuels under speculative storage," Energy Economics, Elsevier, vol. 53(C), pages 64-75.
    2. Barbara Annicchiarico & Francesca Diluiso, 2017. "International Transmission of the Business Cycle and Environmental Policy," CEIS Research Paper 423, Tor Vergata University, CEIS, revised 19 Dec 2017.
    3. repec:kap:enreec:v:67:y:2017:i:4:d:10.1007_s10640-016-0007-5 is not listed on IDEAS
    4. Annicchiarico, Barbara & Battles, Susan & Di Dio, Fabio & Molina, Pierfrancesco & Zoppoli, Pietro, 2017. "GHG mitigation schemes and energy policies: A model-based assessment for the Italian economy," Economic Modelling, Elsevier, vol. 61(C), pages 495-509.
    5. Barbara Annicchiarico & Luca Correani & Fabio Di Dio, 2016. "Environmental Policy and Endogenous Market Structure," CEIS Research Paper 384, Tor Vergata University, CEIS, revised 22 Jun 2016.
    6. Barbara Annicchiarico & Susan Battles & Fabio Di Dio & Pierfrancesco Molina & Pietro Zoppoli, 2016. "GEEM: a policy model for assessing climate-energy reforms in Italy," Working Papers 3, Department of the Treasury, Ministry of the Economy and of Finance.

    More about this item


    Environmental Economics; Environmental Policy; International Policy Coordination; Open Economy Macroeconomics;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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