Arbeitspapier

Emission-based interest rates and the transition to a low-carbon economy

We use a dynamic general equilibrium model to study a climate-oriented monetary policy in the form of emission-based interest rates set by the central bank. Liquidity costs of banks increase with the emission intensity of their asset portfolio, leading banks to favor low-carbon assets and to improve the financing conditions for clean sectors. We show that such a monetary policy supports the decarbonization of the economy and reduces climate damage, as more resources are channeled to low-carbon sectors and incentives to adopt cleaner technologies increase across all sectors. We illustrate these effects by calibrating our model to data for the Euro Area.

Language
Englisch

Bibliographic citation
Series: Economics Working Paper Series ; No. 20/337

Classification
Wirtschaft
Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Monetary Policy
Central Banks and Their Policies
Environment and Growth
Subject
climate change
monetary policy
banks
innovation
financial stability

Event
Geistige Schöpfung
(who)
Böser, Florian
Colesanti Senni, Chiara
Event
Veröffentlichung
(who)
ETH Zurich, CER-ETH - Center of Economic Research
(where)
Zurich
(when)
2020

DOI
doi:10.3929/ethz-b-000421404
Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Böser, Florian
  • Colesanti Senni, Chiara
  • ETH Zurich, CER-ETH - Center of Economic Research

Time of origin

  • 2020

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