Central banks and climate change - the case for action

Abstract

Central banks are increasingly considering their role in meeting climate objectives. Often, central banks justify this by arguing that climate considerations directly impact on their primary objectives of price and financial stability. We argue that a stronger case is that the urgency of climate risks is such that standard neutrality-based objections to central bank involvement in economic allocation are obviated. Indeed, neutrality-based arguments look especially weak when it is realised neutrality is essentially impossible for central banks to achieve.