No country is an island: International cooperation and climate change

Arbeitspapier

In this paper we explore the cross-country implications of climate-related mitigation policies. Specifically, we set up a two-country, two-sector (brown vs green) DSGE model with negative production externalities stemming from carbon-dioxide emissions. We estimate the model using US and euro area data and we characterize welfare-enhancing equilibria under alternative containment policies. Three main policy implications emerge: i) fiscal policy should focus on reducing emissions by levying taxes on polluting production activities; ii) monetary policy should look through environmental objectives while standing ready to support the economy when the costs of the environmental transition materialize; iii) international cooperation is crucial to obtain a Pareto improvement under the proposed policies. We finally find that the objective of reducing emissions by 50%, which is compatible with the Paris agreement's goal of limiting global warming to below 2 degrees Celsius with respect to pre-industrial levels, would not be attainable in absence of international cooperation even with the support of monetary policy.

Angaben zum Objekt

• ISBN: 978-92-899-4754-1
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 2568

Klassifikation und Themen

• Klassifikation: Wirtschaft ; International Policy Coordination and Transmission ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; International Finance: General
• Thema: DSGE model ; open-economy macroeconomics ; optimal policies ; climate modelling

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Ferrari, Massimo ; Pagliari, Maria Sole
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2021

Weitere Informationen

• DOI: doi:10.2866/982743
• Handle: http://hdl.handle.net/10419/237707
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ