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The effects of a green monetary policy on firms financing cost

Author

Listed:
  • Andrea Bacchiocchi

    (University of Urbino Carlo Bo, DESP)

  • Sebastian Ille

    (University of Urbino Carlo Bo, DESP
    Northeastern University London)

  • Germana Giombini

    (University of Urbino Carlo Bo, DESP)

Abstract

The monetary policy operations of a central bank (CB) involve allocation decisions when purchasing assets and taking collateral. A green monetary policy aims to steer or tilt the allocation of assets and collateral toward low-carbon industries, to reduce the cost of capital for these sectors in comparison to high-carbon ones. Starting from a corporate bonds purchase program (e.g., CSPP) that follows a carbon-neutral monetary policy, we analyze how a shift in the CB portfolio allocation toward bonds issued by low-carbon companies can favor green firms in the market. Relying on optimal portfolio theory, we study how the CB might include the risk related to the environmental sustainability of firms in its balance sheet. In addition, we analyze the interactions between the neutral or green CB re-balancing policy and the evolutionary choice (i.e., by means of exponential replicator dynamics) of a population of firms that can decide to be green or not according to bonds borrowing cost.

Suggested Citation

  • Andrea Bacchiocchi & Sebastian Ille & Germana Giombini, 2024. "The effects of a green monetary policy on firms financing cost," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 19(4), pages 727-757, October.
    • Handle: RePEc:spr:jeicoo:v:19:y:2024:i:4:d:10.1007_s11403-023-00400-0
    DOI: 10.1007/s11403-023-00400-0
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    More about this item

    Keywords

    Monetary policy; Optimal portfolio allocation; Environmental economics; Interacting agents; Evolutionary dynamics;
    All these keywords.

    JEL classification:

    • 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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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