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The effects of a green monetary policy on firms financing costs

Author

Listed:
  • Andrea Bacchiocchi

    (Department of Economics, Society & Politics, Università di Urbino Carlo Bo)

  • Sebastian Ille

    (Northeastern University London)

  • Germana Giombini

    (Department of Economics, Society & Politics, Università di Urbino Carlo Bo)

Abstract

The monetary policy operations of a Central Bank (CB) involve allocation decisions when purchasing assets and taking collateral. A green monetary policy aims to steer or tilt the allocation of assets and collateral towards low-carbon industries, to reduce the cost of capital for these sectors in comparison to high-carbon ones. Starting from a corporate bonds purchase program (e.g. CSPP) that follows a carbon-neutral monetary policy, we analyze how a shift in the CB portfolio allocation towards bonds issued by low-carbon companies can favor green firms in the market. Relying on optimal portfolio theory, we study how the CB might include the risk related to the environmental sustainability of firms in its balance sheet. In addition, we analyze the interactions between the neutral or green CB re-balancing policy and the evolutionary choice (i.e. by means of expo- nential replicator dynamics) of a population of firms that can decide to be green or not according to bonds borrowing cost.

Suggested Citation

  • Andrea Bacchiocchi & Sebastian Ille & Germana Giombini, 2023. "The effects of a green monetary policy on firms financing costs," Working Papers 2301, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2023.
    • Handle: RePEc:urb:wpaper:23_01
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    References listed on IDEAS

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    Cited by:

    1. Accinelli, E. & Giombini, G. & Muñiz, H. & Owen, L. & Policardo, L. & Carrera, E.J. Sánchez, 2025. "On the game of going green: How do consumers, firms, and banks struggle to escape environmental traps?," European Economic Review, Elsevier, vol. 180(C).
    2. Hong, Shuai & Li, Guo & Wang, Tianzun, 2026. "Re-examining the effectiveness of command-and-control environmental regulation on green innovation: Evidence from a quasi-natural experiment in the Beijing-Tianjin-Hebei region," International Review of Economics & Finance, Elsevier, vol. 109(C).
    3. Carrera, Edgar J. Sanchez & Giombini, Germana & Calcagnini, Giorgio, 2025. "Bank lending policies and green transition," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 619-629.
    4. Marwil J. Dávila-Fernández & Germana Giombini & Edgar J. Sánchez-Carrera, 2025. "Climateflation and Monetary Policy in an Environmental OLG Growth Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(11), pages 2937-2968, November.
    5. Nguyet, Pham Thi Anh, 2025. "Novel Findings from New Estimation between Green Monetary Policy and Environmental Sustainability in Europe: Does Institutional Quality Matter?," International Journal of Energy Economics and Policy, International Journal of Energy Economics and Policy, vol. 15(4), pages 797-811, June.
    6. Ille, Sebastian & Carrera, Edgar J. Sanchez, 2025. "Why Do Firms Choose to Greenwash: An Evolutionary Analysis of Greenwashing Incentives and Deterrents," MPRA Paper 126152, University Library of Munich, Germany.

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    Keywords

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    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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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