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Do monetary policy mandates and financial stability governance structures matter for the adoption of climate-related financial policies?

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  • D’Orazio, Paola
  • Popoyan, Lilit

Abstract

The proposed analysis investigates whether the type of central banks’ monetary policy mandates and their financial stability governance arrangements influence the adoption of climate-related financial policies. The empirical findings confirm a statistically significant relationship between a broader monetary policy mandate and the adoption of climate-related financial policies. However, the hypothesis – informed by existing literature – that a more integrated financial stability governance model would imply a higher adoption of climate-related financial policies is not confirmed. Focusing on G20 countries in 2000–2018, the study reveals that a more complex financial stability governance based on less integrated arrangements is more successful for climate-related financial policy adoption. Other factors, such as the presence of a democratic regime, the independence of the central bank, and being a member of the Sustainable Banking Network, have a positive and (statistically) significant effect across all specifications. Moreover, the materialization of climate-related physical risks such as, e.g., floods, heatwaves, droughts, and storms, and transition risks proxied by – among others – CO2 emissions per capita, climate mitigation policies, and financial readiness to implement climate adaptation plans are also essential. The results are robust after considering a different dependent variable and several alternative model specifications.

Suggested Citation

  • D’Orazio, Paola & Popoyan, Lilit, 2023. "Do monetary policy mandates and financial stability governance structures matter for the adoption of climate-related financial policies?," International Economics, Elsevier, vol. 173(C), pages 284-295.
    • Handle: RePEc:eee:inteco:v:173:y:2023:i:c:p:284-295
    DOI: 10.1016/j.inteco.2023.01.004
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    More about this item

    Keywords

    Climate-related financial policies; Green central banking; Central bank mandates; Central bank governance; Climate risks;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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