Role of bank lending in financing green projects: A dynamic stochastic general equilibrium approach

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This paper develops an environmental dynamic stochastic general equilibrium (E-DSGE) model with heterogeneous production sectors. In particular, the model comprises some low-carbon emission firms that finance their investments and production only through banking loans, and high-carbon emission firms that finance their investments either with bank loans or by issuing equities. Moreover, government imposes intensity targets to reduce pollution, and high-carbon emission firms buy permits to allow their production. The model studies the transmission mechanism of technology, monetary, and financial shocks and finds that only a positive financial shock to green firms can boost production and credit for the green sector. A financial shock can be interpreted as the borrowing capacity of firms in terms of tightening or relaxing the enforcement of collateral constraints. In contrast, a positive technology shock and easier monetary policy lead only to a short output on impact, but in the longer term green firms experience losses. Later, the paper analyzes the impact of several macroprudential policies and finds that only differentiated capital requirements can help to sustain green financing.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ADBI Working Paper ; No. 881

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Energy and the Macroeconomy ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
• Subject: E-DSGE model ; environmental policy ; green financing ; macroprudential policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Punzi, Maria Teresa
• Event: Veröffentlichung
• (who): Asian Development Bank Institute (ADBI)
• (where): Tokyo
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/190302
• Last update: 10.03.2025, 11:44 AM CET