Discussionof
ECB1
NavigatingthePathtoNetZero
TheInterplayofClimate,Monetary,andFinancialPolicies
Paris,19th April2024
1Theopinionsexpressedarethoseoftheauthoranddonotnecessarily reflecttheviewsoftheECBortheEurosystem.
Thepaper
“Greenflation?”
AlessandroFerrari
A.Ferrari
Researchquestion(s)
1 Whataretheinflationaryimplicationsofthegreentransition?
2 What’stheoptimalreactionofmonetarypolicy?
Thepaper Thepaper
A.Ferrari 1/5
Researchquestion(s)
1 Whataretheinflationaryimplicationsofthegreentransition?
2 What’stheoptimalreactionofmonetarypolicy?
DevelopsaDSGEmodelwithenergyasaninputintheproductionandwithdifferentenergysources.
Findsthat:
1 Theimpactofthegreentransitiononinflationandoutputis mild.
2 Optimalmonetarypolicyshouldtargetcoreinflation.
Thispaperaddressesaninterestingquestionwithacleanand concisemodel.
Somesuggestionsonotherchannelsnotconsideredinthemodel.
Thepaper Thepaper
A.Ferrari 1/5
Otherchannels
Themodelabstractsfromcapitalinallsectors.
Thepaper
A.Ferrari 2/5
Themodelabstractsfromcapitalinallsectors.
Whendiscussing”greenflation,”thiscouldbeanimportantchannel:
Increaseinobsolescencerateforcapitalinthe’brown’sector (e.g.,fossilelectricplants).
Largeneedsforcapitalinnewtechnologies(e.g.,renewables, nuclearplants).Fortheeuroareaalone,estimatedat500-900 billioneurosperyear,includingadaptation(seeMonasteroloet al.,2024).
Thepaper
Otherchannels
A.Ferrari 2/5
Themodelabstractsfromcapitalinallsectors.
Whendiscussing”greenflation,”thiscouldbeanimportantchannel:
Increaseinobsolescencerateforcapitalinthe’brown’sector (e.g.,fossilelectricplants).
Largeneedsforcapitalinnewtechnologies(e.g.,renewables, nuclearplants).Fortheeuroareaalone,estimatedat500-900 billioneurosperyear,includingadaptation(seeMonasteroloet al.,2024).
Howareyourresultsaffectedbytheintroductionofcapitalinto thepicture?Istheimpactonaggregatedemandnegligible?
Considerthefollowingpapersforfurtherexploration:Bartocci, Notarpietro,andPisani(2022);Coenen,Lozej,andPriftis(2023).
Thepaper
Otherchannels
A.Ferrari 2/5
Whenanalyzingoptimalmonetarypolicyrules,expectationsare crucial.
2TheECB’sPriceStabilityFramework:PastExperience,andCurrentand FutureChallenges,ECBoccasionalpaper,2021
Thepaper
Expectations
A.Ferrari 3/5
Expectations
Whenanalyzingoptimalmonetarypolicyrules,expectationsare crucial.
Roleofbackward-lookingexpectationsonoptimalstrategy(ECB strategyreview2).
2TheECB’sPriceStabilityFramework:PastExperience,andCurrentand FutureChallenges,ECBoccasionalpaper,2021
Thepaper
A.Ferrari 3/5
Expectations
Whenanalyzingoptimalmonetarypolicyrules,expectationsare crucial.
Roleofbackward-lookingexpectationsonoptimalstrategy(ECB strategyreview2).
Theirrolecanbeparticularlyrelevantfora30-yearhorizon, wheretheassumptionofrationalexpectationsmaybestrong.
2
TheECB’sPriceStabilityFramework:PastExperience,andCurrentand FutureChallenges,ECBoccasionalpaper,2021
Thepaper
A.Ferrari 3/5
Expectations
Whenanalyzingoptimalmonetarypolicyrules,expectationsare crucial.
Roleofbackward-lookingexpectationsonoptimalstrategy(ECB strategyreview2).
Theirrolecanbeparticularlyrelevantfora30-yearhorizon, wheretheassumptionofrationalexpectationsmaybestrong.
FerrariandNispiLandi(2022)arguethatthegreentransition isdeflationary,butbackward-lookingexpectationscanleadto atemporaryovershooting.
2TheECB’sPriceStabilityFramework:PastExperience,andCurrentand FutureChallenges,ECBoccasionalpaper,2021
Thepaper
A.Ferrari 3/5
Figure1: ImpactofBackward-LookingExpectationsonMacroeconomicAggregates.
Source:FerrariandNispiLandi(2022)
Thepaper
Expectations-II
A.Ferrari 4/5
Figure1: ImpactofBackward-LookingExpectationsonMacroeconomicAggregates.
Source:FerrariandNispiLandi(2022)
Thefiguresuggestsalittleimpactonmacroeconomicaggregates(tentativeassessment).
Thepaper Expectations-II
A.Ferrari 4/5
Figure1: ImpactofBackward-LookingExpectationsonMacroeconomicAggregates.
Source:FerrariandNispiLandi(2022)
Thefiguresuggestsalittleimpactonmacroeconomicaggregates(tentativeassessment).
However,it’sessentialtoconsidertheinteraction.There’sa riskofentrenchmentoflow/highinflationexpectations,which maycreateafeedbackloop.
Thepaper Expectations-II
A.Ferrari 4/5
Thepaperaddressesaninterestingandimportantquestion.
Consideraddingarobustnesscheckforcapital.
Exploretheimplicationsifexpectationsarenotfullyforwardlooking.
Thepaper Conclusions
A.Ferrari 5/5
