MONETARY POLICY UNDER CLIMATE CHANGE
George Economides
Athens University of Economics and Business, and CESifo,
Anastasios Xepapadeas
Athens University of Economics and Business, University of Bologna,
Abstract
We study monetary policy under climate change in order to answer the question of whether monetary policy should take into account the expected impacts of climate change. The setup is a new Keynesian dynamic stochastic general equilibrium model of a closed economy in which a climate module that interacts with the economy has been incorporated, and the monetary authorities follow a Taylor rule for the nominal interest rate. The model is solved numerically using common parameter values and fiscal data from the euro area. Our results, which are robust to a large number of sensitivity checks, suggest non-trivial implications for the conduct of monetary policy.
JEL-classifications: E5; E1; Q5.
Keywords: Climate change, monetary policy, new Keynesian model, Taylor rule.
Acknowledgement: The authors acknowledge financial support from the Bank of Greece. We would like to thank the Research Department of the Bank of Greece, Apostolis Philippopoulos and Petros Varthalitis for discussions and comments on earlier versions of this paper. Any errors are the responsibility of the authors.
Correspondence:
Anastasios Xepapadeas
Athens University of Economics and Business
76, Patision str.
104 34, Athens
xepapad@aueb.gr