Working Paper: NBER ID: w28891
Authors: Nicholas Z. Muller
Abstract: This paper demonstrates how a central bank might operationalize an expanded role inclusive of managing risks from environmental pollution. The analysis introduces the green interest rate (rg) which depends on temporal changes in the pollution intensity of output. This policy instrument reallocates consumption from periods when output is pollution intensive to when output is cleaner. In economies on a cleaning-up path, rg exceeds r*. For those growing more polluted, rg is less than r*. In the U.S. economy from 1957 to 2016, rg exceeded r* by 50 basis points. Federal environmental policy reversed the orientation between rg and r*.
Keywords: No keywords provided
JEL Codes: E21; E43; E63; Q51; Q53; Q54; Q56; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| green interest rate (rg) (E43) | consumption (low pollution intensity) (O44) |
| pollution intensity (Q53) | green interest rate (rg) (E43) |
| pollution intensity (Q53) | natural interest rate (r) (E43) |
| green interest rate (rg) (E43) | natural interest rate (r) (E43) |
| green interest rate (rg) (E43) | consumption (high pollution intensity) (Q53) |
| Clean Air Act (Q53) | green interest rate (rg) (E43) |
| business cycle (E32) | green interest rate (rg) (E43) |
| business cycle (E32) | natural interest rate (r) (E43) |