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Georg Müller

21 September 2021
OCCASIONAL PAPER SERIES - No. 271
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Abstract
This paper analyses the implications of climate change for the conduct of monetary policy in the euro area. It first investigates macroeconomic and financial risks stemming from climate change and from policies aimed at climate mitigation and adaptation, as well as the regulatory and fiscal effects of reducing carbon emissions. In this context, it assesses the need to adapt macroeconomic models and the Eurosystem/ECB staff economic projections underlying the monetary policy decisions. It further considers the implications of climate change for the conduct of monetary policy, in particular the implications for the transmission of monetary policy, the natural rate of interest and the correct identification of shocks. Model simulations using the ECB’s New Area-Wide Model (NAWM) illustrate how the interactions of climate change, financial and fiscal fragilities could significantly restrict the ability of monetary policy to respond to standard business cycle fluctuations. The paper concludes with an analysis of a set of potential monetary policy measures to address climate risks, insofar as they are in line with the ECB’s mandate.
JEL Code
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
23 September 2020
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 6, 2020
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Abstract
Fiscal policy is playing a key role in stemming the economic fallout from the coronavirus (COVID-19) pandemic. In addition to the discretionary fiscal policy measures employed by governments, automatic fiscal stabilisers play an important role in cushioning the economic downturn. This article shows that automatic fiscal stabilisers are generally sizeable in the euro area, but vary significantly across Member States. However, their effectiveness may be more limited at the current juncture, given the nature of the COVID-19 crisis and the high uncertainty surrounding its effects. This provides a rationale for a stronger role of discretionary fiscal policy at national and European level. Over the medium term, fiscal policies could increasingly make use of quasi-automatic fiscal instruments that provide additional timely, targeted and temporary macroeconomic stabilisation for the euro area. Careful consideration should be given to the design of such instruments over the business cycle, their economic efficiency, and to the need for building fiscal buffers in good times.
JEL Code
H12 : Public Economics→Structure and Scope of Government→Crisis Management
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
12 June 2020
WORKING PAPER SERIES - No. 2418
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Abstract
We quantify the size of fiscal multipliers under financial fragmentation risk and demonstrate how non-standard monetary policy can support the macroeconomic transmission of fiscal interventions. We employ a DSGE model with financial frictions whereby the interplay of corporate, banks and sovereign solvency risk affect the transmission of fiscal policy. The output multiplier of fiscal expansion is found to be significantly dampened by tighter financial conditions in case households are less certain about implicit and explicit state-guarantees for the banking system, or banks are weakly capitalized and highly exposed to the government sector. In this context, we show that central bank asset purchases or liquidity operations designed to ensure favourable bank funding conditions can restore fiscal multipliers.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy