The Economic and Environmental Effects of Green Financial Policy in China: A DSGE Approach
31 Pages Posted: 26 Nov 2019
Date Written: July 20, 2019
This paper explores the potential economic and environmental effects of the newly introduced “green financial policies” in China by an adjusted Dynamic Stochastic General Equilibrium (DSGE) model. This model is based on a basic Real Business Cycle (RBC) framework and introduces three novel aspects: (1) Banking sector offering green lending; (2) Firm sector conducting green and non-green production; (3) Central bank and fiscal sector implementing green financial policy. These new modules allow us to formally introduce green financing activity and policies aiming on it. This study finds that all three green financial policies assessed, namely relending, interest subsidy, and directional reduction for reserve ratio requirement, are effective instruments to incentivise green loan and have positive effects on the green economic transition and the environment. The cost is limited compared with the benefit.
Keywords: Green Financial Policy, Effect, China, DSGE Model
JEL Classification: E10, E58, G28
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