The effects of conventional and unconventional monetary policies of the US, EU, and China on global green investment

Abstract

This study investigates how the monetary policies of the USA, EU, and China affect global green investment differently by using the dynamic autoregressive distributive lag (DARDL) model and kernel-based regularized least squares (KRLS). DARDL's results show that US monetary policy is not conducive to global green investment in the short and long term. The EU's conventional monetary policy negatively impacts global green investment, but only in the short term. However, China's conventional monetary policy boosts global green investment in the long term. The inference from the response simulations implies that the conventional monetary easing policy of the US, EU, and China positively influences global green investment in the long and short run. However, the magnitude of the response of the EU is greater than that of the US and China. Unconventional monetary policy easing of the US negatively influences global green investments in the short run, whereas China and EU policies affect it positively. However, in the long run, global green investment is unaffected by unconventional monetary policy easing in the case of the US. In contrast, China's and the EU's unconventional monetary policies easing have had a positive impact. In the case of financial development, a negative impact on global green investment is more strongly evident for China than for the US and the EU. Overall, the empirical results of this study recommend that a significant change in the monetary policies of large economies is required to promote global green investment for ecological transition.