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


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: or

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

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


Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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