The transition to a green economy: Implications for monetary policy
We develop an Environmental New-Keynesian model to study the macroeconomic impact of climate policy shocks and which inflation measure is best to target in response to them. We find that the magnitude of adjustments to climate policy shocks and the most appropriate monetary policy response depend on the elasticity of substitution across production inputs and consumption goods. We show that, from a welfare perspective, in the presence of imperfect complementarity and substitutability in consumption and production, targeting headline inflation performs as well as targeting core inflation. Finally, we show that a sudden carbon tax increase transmits as an adverse supply shock, while a transition involving a gradual rise in carbon prices doesn’t necessarily result in higher prices, but does entail significant real adjustments.
Date: 27 November 2023, 16:05 (Monday, 8th week, Michaelmas 2023)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Skills Lab or https://zoom.us/j/97534799321?pwd=UjR6MWpCTDZkN28rUUJKWHp1Vmt1Zz09
Speaker: Francesca Diluiso (Bank of England)
Organising department: Department of Economics
Part of: Environment and Resource Economics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Emma Heritage