Monetary policy likely to be weak climate tool – Bank of Spain paper
Model finds central banks are likely to prioritise price stability over reducing carbon emissions
Monetary policy is likely to be an ineffective tool in combatting climate change, a working paper published by the Bank of Spain finds.
In Climate-conscious monetary policy, Anton Nakov and Carlos Thomas use a New Keynesian model with climate externalities. The paper examines how central banks will resolve these trade-offs during a slow transition to a low-carbon economy.
“Provided they are set at their socially optimal level, carbon taxes pose no trade-offs for monetary policy,” the authors
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