Quotation Monasterolo, Irene, Raberto, Marco. 2017. Is There a Role for Central Banks in the Low-Carbon Transition? A Stock-Flow Consistent Modelling Approach. Central Banking and Green Finance, Dutch Central Bank, Netherlands, 28.11-29.11. Invited Talk


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Abstract

Climate change was recognized as a risk for ecosystems and the economy, and recently for the stability of the financial system. Tackling climate change requires urgent investments in the low-carbon energy transition. However, capital is not flowing at the pace and amount needed, exposing public and private investments to the risk of stranded assets. Central banks’ influence in the economy soared since 2008 but their role in the low-carbon transition has been mostly neglected so far. In this article, we display under which conditions central banks could contribute to meet the interlinked goals of sustainability and financial stability by influencing the timing and magnitude of the low-carbon transition. By further developing the EIRIN Stock-Flows Consistent, flow-of-funds behaviorual model, we simulate three scenarios, i.e. an unconditioned Quantitative Easing (QE), a green QE conditional to the purchase of green sovereign bonds, and conventional monetary policies. For each scenario, we analyze the impact on green investments and jobs, credit conditions, green/brown bonds market, and inequality across heterogeneous households and sectors, identifying main feedback loops and transmission channels. We find that, under the model’s conditions, a green QE promotes a faster development of the green bonds’ market, with positive spillovers on green investments, employment, commercial and central banks’ reserves, and on decreasing risk of stranded assets for the financial system. However, in all scenarios we find that wealth concentration in the credit sector and in the wealthiest household increases, with undesirable effects on income inequality, financial stability and aggregate demand.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title Is There a Role for Central Banks in the Low-Carbon Transition? A Stock-Flow Consistent Modelling Approach
Event Central Banking and Green Finance
Year 2017
Date 28.11-29.11
Country Netherlands
Location Dutch Central Bank
URL http://dx.doi.org/10.2139/ssrn.3075247
Invited Talk Y

Associations

People
Monasterolo, Irene (Details)
External
Raberto, Marco (University of Genoa, Italy)
Organization
Institute for Ecological Economics IN (Details)
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