Abstract
In the face of mounting evidence of global warming, which is an irreversible process, central banks, as other policymakers, have to play their part. They need to consider climate risks not only in their internal management, but also when they devise their strategies, conduct their policies and implement their decisions. This article examines the possible impacts of climate risks on the two main variables of interest for monetary policy, economic growth and inflationary pressures. On that basis, it infers the potential consequences for the objective of monetary policy, its conduct and its implementation.
Highlights
What can central banks do to help fight climate change? Like any other body, they can first improve their own functioning and incorporate climate change risk considerations in the drawing and the implementation of their projects
A likely limited impact on monetary policy in the short to medium term This article first examines the possible impacts of climate risks on the two main variables of interest for monetary policy, economic growth and inflationary pressures
Of the carbon tax efficiently or if growth becomes more volatile in emerging economies, a risk that is present in both scenarios, since these economies are likely to be affected by climate change earlier than developed ones
Summary
In the face of mounting evidence of global warming, which is an irreversible process, central banks, as other policymakers, have to play their part. This article examines the possible impacts of climate risks on the two main variables of interest for monetary policy, economic growth and inflationary pressures. On that basis, it infers the potential consequences for the objective of monetary policy, its conduct and its implementation. Central banks may consider climate change risks when making decisions about their own funds investment policy (Cœuré, 2018) All, they can examine the extent to which they can incorporate these risks when pursuing their two main missions: defining, conducting and implementing monetary policy, and preserving financial stability. This is not necessarily the case in the medium term if the government does not use the proceeds
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