Climate Change and Monetary Policy in the Euro Area

Abstract

This paper analyses the implications of climate change for the conduct of monetary policy in the euro area. It first investigates macroeconomic and financial risks stemming from climate change and from policies aimed at climate mitigation and adaptation, as well as the regulatory and fiscal effects of reducing carbon emissions. In this context, it assesses the need to adapt macroeconomic models and the Eurosystem/ECB staff economic projections underlying the monetary policy decisions. It further considers the implications of climate change for the conduct of monetary policy, in particular the implications for the transmission of monetary policy, the natural rate of interest and the correct identification of shocks. Model simulations using the ECB's New Area-Wide Model (NAWM) illustrate how the interactions of climate change, financial and fiscal fragilities could significantly restrict the ability of monetary policy to respond to standard business cycle fluctuations. The paper concludes with an analysis of a set of potential monetary policy measures to address climate risks, insofar as they are in line with the ECB's mandate.

Environmental External Production Costs of Extracts Derived from Poplar-Containing Bioactive Substances

“…Moreover, the fact that airborne pollutants raise the risk of morbidity and mortality due to pulmonary diseases [20], e.g., chronic pulmonary obstructive disease or lung cancer [21], indicates that any industrial production can affect the environment, often causing its deterioration. Despite the existing system of payments for CO 2 emissions, Drudi et al [22] made an assertion that the effects of people's economic activity have still been underestimated and are not properly taken into consideration in financial markets. It is not always possible to restore the environment to its previous condition, and even when it is-any effort at its restoration will incur considerable expenditures.…”