Greening Monetary Policy

25 Pages Posted: 19 Sep 2018 Last revised: 29 Dec 2019

See all articles by Dirk Schoenmaker

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

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Date Written: December 28, 2019

Abstract

While there is increasing interest in decarbonising or greening monetary policy, central banks are keen to maintain market neutrality. But there is evidence that the market has a bias towards carbon-intensive companies. The paper develops a method to tilt the ECB’s asset and collateral framework towards low-carbon assets. We find that a modest tilting approach reduces carbon emissions in the ECB’s corporate and bank bond portfolio by over 40 per cent. It also lowers the cost of capital of low-carbon companies in comparison with high-carbon companies by 4 basis points. We show that a low carbon allocation can be done without undue interference with the transmission mechanism of monetary policy.

Keywords: Monetary Policy, Collateral, Central Bank, Eurosystem, Environmental Policy, ESG

JEL Classification: E52, E58, Q01, Q52, Q54

Suggested Citation

Schoenmaker, Dirk, Greening Monetary Policy (December 28, 2019). Available at SSRN: https://ssrn.com/abstract=3242814 or http://dx.doi.org/10.2139/ssrn.3242814

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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