Greening Monetary Policy

Climate Policy, 21(4), 581-592.

22 Pages Posted: 19 Sep 2018 Last revised: 29 Mar 2021

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)

Multiple version iconThere are 2 versions of this paper

Date Written: March 26, 2021

Abstract

While there is increasing interest in decarbonising or greening monetary policy, central banks are keen to maintain market neutrality. However, there is evidence that the market has a bias towards carbon-intensive companies. The paper develops a method to tilt the European Central Bank’s (ECB) asset and collateral framework towards low-carbon assets. We find that a medium tilting approach reduces carbon emissions in the ECB’s corporate and bank bond portfolio by over 50%. We show that a low carbon allocation can be done without undue interference with the transmission mechanism of monetary policy.

Keywords: Monetary Policy, Collateral, Decarbonising, Carbon Emissions, Cost of Capital

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

Suggested Citation

Schoenmaker, Dirk, Greening Monetary Policy (March 26, 2021). Climate Policy, 21(4), 581-592., 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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