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Modelling Monetary and Fiscal Policy to Achieve Climate Goals

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  • Yener Altunbas

    (Bangor University)

  • Xiaoxi Qu

    (Bangor University)

  • John Thornton

    (University of East Anglia)

Abstract

We present and estimate a Bernanke et al. (1999)-type dynamic general equilibrium model modified to allow the authorities to use monetary and fiscal policy to shape bank behavior in support of climate goals. In the model, central bank refinancing and reserve requirements are employed to support bank lending for environmentally friendly projects at lower rates of interest than for other projects. At the same time, fiscal policy supports green bank lending through loan guarantees, which also reduces the relative cost of borrowing by green firms. Under reasonable parameters of the model, rediscount lending is shown to be the most effective policy tool for directing bank lending to support climate goals

Suggested Citation

  • Yener Altunbas & Xiaoxi Qu & John Thornton, 2024. "Modelling Monetary and Fiscal Policy to Achieve Climate Goals," Working Papers 310, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:310
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/310.pdf
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