Toward a Green Economy: The Role of Central Bank's Asset Purchases

63 Pages Posted: 14 Feb 2023

Date Written: February, 2023

Abstract

We use a DSGE model to study the effectiveness of green-asset purchases by the central bank (Green QE), along the transition to a carbon-free economy driven by an emission tax, abstracting from price stability considerations. We find that Green QE helps to further reduce emissions, especially in the early stage of the transition. We find that a crucial parameter to determine the effectiveness of Green QE is the elasticity of substitution between the brown and the green good: the higher the elasticity the stronger the impact of the policy on emissions.

Keywords: central bank, climate change, monetary policy, quantitative easing

JEL Classification: E52, E58, Q54

Suggested Citation

Ferrari, Alessandro and Nispi Landi, Valerio, Toward a Green Economy: The Role of Central Bank's Asset Purchases (February, 2023). ECB Working Paper No. 2023/2779, Available at SSRN: https://ssrn.com/abstract=4357535 or http://dx.doi.org/10.2139/ssrn.4357535

Alessandro Ferrari (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Valerio Nispi Landi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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