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“Green” fiscal policy measures and nonstandard monetary policy in the euro area

Author

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  • Bartocci, Anna
  • Notarpietro, Alessandro
  • Pisani, Massimiliano

Abstract

The paper builds a two-region New Keynesian model with a complex energy production sector. It is calibrated to the euro area (EA) and the rest of the world. It simulates the gradual introduction of a carbon tax in the EA and finds recessionary and disinflationary effects. When green energy is subsidized and labor taxes are reduced, the recession becomes much smaller. As green fiscal policy is disinflationary in the model, assuming a binding effective lower bound on the monetary policy rate may reduce these positive effects. This can be prevented by allowing the central bank to purchase long-term sovereign bonds for monetary policy reasons.

Suggested Citation

  • Bartocci, Anna & Notarpietro, Alessandro & Pisani, Massimiliano, 2024. "“Green” fiscal policy measures and nonstandard monetary policy in the euro area," Economic Modelling, Elsevier, vol. 136(C).
    • Handle: RePEc:eee:ecmode:v:136:y:2024:i:c:s0264999324000993
    DOI: 10.1016/j.econmod.2024.106743
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    Keywords

    Carbon tax; Dynamic general equilibrium model; Effective lower bound; Euro area; Fiscal policy; Monetary policy;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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