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Price Stability and Climate Risks: Sensible Measures for the European Central Bank

Author

Listed:
  • Franziska Bremus
  • Geraldine Dany-Knedlik
  • Thore Schlaak

Abstract

By the end of 2020, the European Central Bank (ECB) will present the results of its monetary policy strategy review. What changes are to be expected and what changes are needed? This report covers two areas of the strategy review. First, alternatives to the current definition of price stability are discussed. Current studies and the practices of other central banks indicate that supplementing the inflation target with a tolerance interval may be useful to enhance central bank credibility. Second, it is discussed to what extent climate risks play a role in the ECB’s economic analyses and monetary policy measures. Empirical evidence shows that weather events such as extreme droughts or floods can influence business cycles in the euro area. Overall, climate risks should be assessed both as part of the ECB’s macroeconomic and monetary analyses and as part of its portfolio and risk management.

Suggested Citation

  • Franziska Bremus & Geraldine Dany-Knedlik & Thore Schlaak, 2020. "Price Stability and Climate Risks: Sensible Measures for the European Central Bank," DIW Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 10(14), pages 205-213.
    • Handle: RePEc:diw:diwdwr:dwr10-14-1
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.745696.de/dwr-20-14-1.pdf
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    Citations

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    Cited by:

    1. Sarah Wolf & Jonas Teitge & Jahel Mielke & Franziska Schütze & Carlo Jaeger, 2021. "The European Green Deal — More Than Climate Neutrality," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(2), pages 99-107, March.
    2. Chaitat Jirophat & Pym Manopimoke & Suparit Suwanik, 2022. "The Macroeconomic Effects of Climate Shocks in Thailand," PIER Discussion Papers 188, Puey Ungphakorn Institute for Economic Research.

    More about this item

    Keywords

    monetary policy; price stability; climate risks;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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