A1532
Title: Monetary policy, climate risks, and energy transition a dynamic macro model and econometric evidence
Authors: Willi Semmler - New School for Social Research (United States) [presenting]
Abstract: A growing body of literature defends the implementation of a climate-oriented monetary and financial policy. In contrast, others want monetary policy to be market neutral, avoiding climate objectives that could harm Central Banks' (CBs) independence. Yet, if the CB policy is solely targeting inflation rates (and employment as in the US) and is market neutral, it is likely to increase the macro impacts of negative externalities in the long run. Even if climate-related policy goals appear advisable, CBs' actions reveal significant delayed effects on macro and climate risk variables. A nonlinear dynamic macro model is proposed for a finite horizon with multiple targets, including macro imbalances and climate risks arising from a trend in CO2 emission. The non-stationary emission dynamic has feedback effects on stationary and non-stationary macro variables and the multiple objectives of the CBs. It is first explored to what extent CBs can have an impact on emission trends without and with delays. Second, econometrically, given the mix of stationary and non-stationary dynamic variables, the responses are explored to policy and macro shocks using a VECM model with those two types of variables. Third, in the face of the multiple objectives and macroeconomic worries that CBs are facing, a Pareto front is constructed in line with a past study that allows introducing weights for the objectives and target prioritization.
