DP17324 Climate Change Mitigation: How Effective is Green Quantitative Easing?

Author(s): Raphael Abiry, Marien Ferdinandusse, Alexander Ludwig, Carolin Nerlich
Publication Date: May 2022
Date Revised: May 2022
Keyword(s): 2-Sector Model, Carbon taxation, climate change, Green Quantitative Easing, Integrated assessment model
JEL(s): E51, E62, Q54
Programme Areas: Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17324

We develop a two sector incomplete markets integrated assessment model to analyze the effectiveness of green quantitative easing (QE) in complementing fiscal policies for climate change mitigation. We model green QE through an outstanding stock of private assets held by a monetary authority and its portfolio allocation between a clean and a dirty sector of production. Green QE leads to a partial crowding out of private capital in the green sector and to a modest reduction of the global temperature by 0.04 degrees of Celsius until 2100. A moderate global carbon tax of 50 USD is 4 times more effective.