Revisiting policy combinations under IS–LM–EE framework introducing capacity utilization

Abstract

The study introduces the capacity utilization factor into the existing works on the effect of technological progress towards environment friendly capital formation to analyse the impacts of fiscal and monetary policies in an IS–LM framework and concludes that the effects of fiscal and monetary policies on conservation capital and permit cost in the presence of technological progress cause increases in output, but these increases will centre around the full capacity utilization level. Further, the empirical exercise in a pooled regression model involving the income-influencing factors through fiscal and monetary policies shows that technological progress endowed with emission intensity and capacity utilization dummy for the world’s 28 countries, confirms the theoretical results in most circumstances. The study signifies the role of institutions and technological progress as the backbone to frame fiscal and monetary policies as an effective instrument for getting green growth.