Climate Change Mitigation: How Effective is Green Quantitative Easing?

Toward a green economy: the role of central bank's asset purchases

“…Our results complement the findings in Papoutsi et al (2021), Ferrari andNispi Landi (2021) and Abiry et al (2022). In the theoretical section, Papoutsi et al (2021) show how tilting the portfolio of the central bank toward green assets can increase the yield on brown assets, thus reducing emissions: however, they do not provide a quantitative evaluation of this effect; they also show that this policy is desirable if a carbon tax is absent.…”

“…tilting the portfolio of all the central banks in the world toward green assets (without changing the size of the balance sheets) yields small effects when this policy is combined with a global carbon tax; absent a carbon tax, the effects are larger. Remarkably, Abiry et al (2022) use different assumptions compared to those made in the current paper. We focus instead on a central bank's purchase of green bonds financed with an increase in reserves, on top of a carbon tax, finding small effects on cumulative emissions.…”

“…Ferrari and Nispi Landi (2021) find that various forms of temporary Green QE along the business cycle have a limited effect on pollution. Abiry et al (2022) show that 22 Specifically, we set 400 r B − rr = 0.00025 = 400 rr − r G .…”

“…With respect to these papers, we analyse the role of Green QE along the transition: we show that Green QE helps reduce emissions, but the effect is quantitatively small. In an independent work and using a different model, Abiry et al (2022) show that a reallocation of the portfolio composition of the central bank toward the clean sector is much less effective than carbon taxation.…”

Financial Markets and Green Innovation

“…A correction which takes the CSPP portfolio closer to the market may be justified (Schnabel, 2021), and in line with what some other central banks, like the Bank of England, have already announced. 20 Recent research has argued that a green CSPP can have a meaningful, although limited effect on the reallocation of resources necessary underpinning the green transition (e.g., Ferrari and Landi, 2020;Abiri, Ferdinandusse, Ludwig, and Nerlich, 2022).…”