TY  - UNPD
A1  - Le, Anh H.
T1  - Climate change and carbon policy: a story of optimal green macroprudential and capital flow management
N2  - This paper studies the macro-financial implications of using carbon prices to achieve ambitious greenhouse gas (GHG) emission reduction targets. My empirical evidence shows a 0.6% output loss and a rise of 0.3% in inflation in response to a 1% shock on carbon policy. Furthermore, I also observe financial instability and allocation effects between the clean and highly polluted energy sectors. To have a better prediction of medium and long-term impact, using a medium-large macro-financial DSGE model with environmental aspects, I show the recessionary effect of an ambitious carbon price implementation to achieve climate targets, a 40% reduction in GHG emission causes a 0.7% output loss while reaching a zero-emission economy in 30 years causes a 2.6% output loss. I document an amplified effect of the banking sector during the transition path. The paper also uncovers the beneficial role of pre-announcements of carbon policies in mitigating inflation volatility by 0.2% at its peak, and our results suggest well-communicated carbon policies from authorities and investing to expand the green sector. My findings also stress the use of optimal green monetary and financial policies in mitigating the effects of transition risk and assisting the transition to a zero-emission world. Utilizing a heterogeneous approach with macroprudential tools, I find that optimal macroprudential tools can mitigate the output loss by 0.1% and investment loss by 1%. Importantly, my work highlights the use of capital flow management in the green transition when a global cooperative solution is challenging.
T3  - Working paper series / Institute for Monetary and Financial Stability - 191 
KW  - Climate change
KW  - Environmental policy
KW  - Optimal policy
KW  - Transition risk
Y1  - 2023
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/71214
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-712148
UR  - https://www.imfs-frankfurt.de/forschung/imfs-working-papers/details.html?tx_mmpublications_publicationsdetail%5Bcontroller%5D=Publication&tx_mmpublications_publicationsdetail%5Bpublication%5D=453&cHash=8433006f84e4bfb3b96501f92916c9d4
PB  - Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability
CY  - Frankfurt am Main
ER  -