Indirect responsiveness and green central banking

Abstract

ABSTRACT Since 2019, the European Central Bank has become the global frontrunner in green central banking, while the US Federal Reserve has remained a climate laggard. Based on 15 interviews and primary sources, we argue that this policy divergence demonstrates central bankers’ indirect responsiveness to political developments. We showcase how political events – the Global Financial Crisis, the Paris Climate Agreement, the EU’s Green Deal, and the Trump and Biden elections – spurred central bankers to either adopt a greener interpretation of their mandates or invoke their mandates to justify inaction. In the EU, adopting a greener stance became a component of central bankers’ strategy to build broad support. In the US, avoiding the climate issue was necessary to stay above the political fray. Overall, the European green turn challenges the conventional view of the ECB as the archetypical responsible but unresponsive institution.