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  Central bank collateral as a green monetary policy instrument

McConnell, A., Yanovski, B., Lessmann, K. (2022): Central bank collateral as a green monetary policy instrument. - Climate Policy, 22, 3, 339-355.
https://doi.org/10.1080/14693062.2021.2012112

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 Creators:
McConnell, Andrew1, Author              
Yanovski, Boyan1, Author              
Lessmann, Kai1, Author              
Affiliations:
1Potsdam Institute for Climate Impact Research, ou_persistent13              

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 Abstract: Central banks can play an important role in the transition towards a climate-neutral economy. This paper discusses different green monetary policy instruments along the dimensions of feasibility of implementation and impact on the transition process. We identify the inclusion of ‘brown’ collateral haircuts into a central bank’s collateralized lending framework as the most promising conduit of green monetary policy. The impact of such interventions on the real economy is then formally explored by extending a general equilibrium transition model to include a simple banking sector with central bank lending facilities and collateral adjustments. We find that both ‘brown’ collateral haircuts and ‘green hairgrowth’ increase carbon neutral investment while decreasing carbon intensive investment and emissions. Consequently, in addition to decreasing the exposure of the central bank balance sheet to climate-related risks, climate-based collateral adjustments have the potential of increasing the political feasibility of a timely transition to a carbon neutral economy by affecting emission levels. Despite ‘green hairgrowth’ having a stronger effect on investment and emissions, ‘brown’ collateral haircuts remain the recommended policy as the former is not necessarily ‘market neutral’ and thus cannot be broadly applied across central banks.

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Language(s): eng - English
 Dates: 2020-11-282021-11-232021-12-142022-03
 Publication Status: Finally published
 Pages: 17
 Publishing info: -
 Table of Contents: -
 Rev. Type: Peer
 Identifiers: DOI: 10.1080/14693062.2021.2012112
Organisational keyword: RD3 - Transformation Pathways
PIKDOMAIN: RD3 - Transformation Pathways
Organisational keyword: FutureLab - Public Economics and Climate Finance
Research topic keyword: Climate Policy
Research topic keyword: Economics
Regional keyword: Global
Model / method: PRIDE
MDB-ID: pending
 Degree: -

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Title: Climate Policy
Source Genre: Journal, SCI, Scopus
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Pages: - Volume / Issue: 22 (3) Sequence Number: - Start / End Page: 339 - 355 Identifier: Publisher: Taylor & Francis
CoNE: https://publications.pik-potsdam.de/cone/journals/resource/climate-policy