Greening Monetary Policy

29 Pages Posted: 12 Mar 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)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2019


Central banks look at climate related risks at the financial stability side. Should they also take carbon intensity of assets into account at the monetary policy side? After reviewing the central bank mandate, the paper proposes a tilting approach to steer the Eurosystem's asset and collateral framework towards low carbon assets. We find that a modest tilting approach could reduce carbon emissions in the Eurosystem's corporate and bank bond portfolio by over 40 per cent. It could also lower the cost of capital of low carbon companies in comparison with high carbon companies by 4 basis points. Our findings suggest that such a low carbon allocation can be done without undue interference with the transmission mechanism of monetary policy. Price stability, the primary objective, is, and should remain, the priority of the Eurosystem.

Keywords: Assets, Carbon Emissions, Collateral, cost of capital, monetary policy

JEL Classification: E52, E58, Q01, Q52

Suggested Citation

Schoenmaker, Dirk, Greening Monetary Policy (March 2019). CEPR Discussion Paper No. DP13576. Available at SSRN:

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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