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Climate Actions, Public Investment and Inflationary Effects in a Small Open Economy

Author

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  • Guido Traficante

    (European University of Rome)

Abstract

This paper studies the role of public investment and international spillovers in response to climate actions. Using a small-open economy model of a country belonging to a monetary union, it is shown that the inflationary and recessionary effects of a green policy (reduction in emissions or a higher price of fossil energy) can be dampened when the government follows a productive public spending which spurs private sector’s productivity and induces a real depreciation. Moreover, the paper documents that when the climate action is followed just by the domestic economy, it is significantly more costly and the foreign counterpart enjoys the benefits of this kind of policy.

Suggested Citation

  • Guido Traficante, 2025. "Climate Actions, Public Investment and Inflationary Effects in a Small Open Economy," Working and Discussion Papers WP 1/2025, Research Department, National Bank of Slovakia.
    • Handle: RePEc:svk:wpaper:1116
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    More about this item

    JEL classification:

    • 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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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