Central banks and climate change

a column by Markus K Brunnermeier and Jean-Pierre Landau for VOX: CEPR’ Policy Portal

Central banks have been called on to contribute to fighting climate change.

This column presents a framework for thinking about the issue and identifies some major trade-offs and choices. It argues that climate should be a major part of risk assessments and that capital ratios could be used in a proactive way by applying favourable regimes to ‘green’ loans and investments. It also suggests that central banks may want to take several climate change-related aspects into account when designing and implementing monetary policies.

However, the central bank should retain absolute discretion to interrupt any action if its first-priority objective – price stability – were to be compromised.

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Labels:
climate_change, Central_Banks, monetary_policy, Musgrave, risk_assessments, capital_ratios,

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