Environmental and Resource Economics

, Volume 67, Issue 4, pp 823–851 | Cite as

GHG Emissions Control and Monetary Policy

  • Barbara Annicchiarico
  • Fabio Di Dio


This paper examines the optimal environmental and monetary policy mix in a New Keynesian model embodying pollutant emissions, abatement technology and environmental damage. The optimal response of the economy to productivity shocks is shown to depend crucially on the instruments policy makers have available, the intensity of the distortions they have to address (i.e. imperfect competition, costly price adjustment and negative environmental externality) and the way they interact.


GHG emissions control policy Monetary policy Ramsey problem 

JEL Classification

Q58 E32 E52 


  1. Adjemian S, Bastani H, Juillard M, Mihoubi F, Perendia G, Ratto M, Villemot S (2011) Dynare: reference manual, version 4. Dynare working papers no. 1, CREPEMAQGoogle Scholar
  2. Angelopoulos K, Economides G, Philippopoulos A (2013) First-and second-best allocations under economic and environmental uncertainty. Int Tax Public Finance 20:360–380CrossRefGoogle Scholar
  3. Annicchiarico B, Di Dio F (2015) Environmental policy and macroeconomic dynamics in a new Keynesian model. J Environ Econ Manage 69:1–21CrossRefGoogle Scholar
  4. Bosetti V, Maffezzoli M (2014) Occasionally binding emission caps and real business cycles. IGIER working papers 523, Bocconi UniversityGoogle Scholar
  5. Clarida R, Gali J, Gertler M (2000) Monetary policy rules and macroeconomic stability: evidence and some theory. Q J Econ 115:147–180CrossRefGoogle Scholar
  6. Dissou Y (2005) Cost-effectiveness of the performance standard system to reduce \({\rm CO}_{2}\) emissions in Canada: a general equilibrium analysis. Resour Energy Econ 27:187–207CrossRefGoogle Scholar
  7. European Commission (2014) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee of the Regions—Energy prices and costs in Europe—COM(2014) 21 /2Google Scholar
  8. European Council (2014) Conclusions on 2030 climate and energy policy framework, SN 79/14Google Scholar
  9. Faia E (2008) Ramsey monetary policy with capital accumulation and nominal rigidities. Macroecon Dyn 12:90–99CrossRefGoogle Scholar
  10. Faia E (2009) Ramsey monetary policy with labor market frictions. J Monet Econ 56:570–581CrossRefGoogle Scholar
  11. Fischer C, Heutel G (2013) Environmental macroeconomics: environmental policy, business cycles, and directed technical change. Annu Rev Resour Econ 5:197–210CrossRefGoogle Scholar
  12. Fischer C, Springborn M (2011) Emissions targets and the real business cycle: intensity targets versus caps or taxes. J Environ Econ Manage 62:352–366CrossRefGoogle Scholar
  13. Galí J (2009) Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework. Princeton University Press, PrincetonGoogle Scholar
  14. Ganelli G, Tervala J (2011) International transmission of environmental policy: a new Keynesian perspective. Ecol Econ 70:2070–2082CrossRefGoogle Scholar
  15. Golosov M, Hassler J, Krusell P, Tsyvinski A (2014) Optimal taxes on fossil fuel in general equilibrium. Econometrica 82:41–88CrossRefGoogle Scholar
  16. Goulder LH, Parry IWH, Williams RC III, Burtraw D (1999) The cost-effectiveness of alternative instruments for environmental protection in a second-best setting. J Public Econ 72:329–360CrossRefGoogle Scholar
  17. Heutel G (2012) How should environmental policy respond to business cycles? Optimal policy under persistent productivity shocks. Rev Econ Dyn 15:244–264CrossRefGoogle Scholar
  18. Hoel M, Karp L (2002) Taxes versus quotas for a stock pollutant. Resour Energy Econ 24:367–384CrossRefGoogle Scholar
  19. Kelly DL (2005) Price and quantity regulation in general equilibrium. J Econ Theory 125:36–60CrossRefGoogle Scholar
  20. Jotzo F, Pezzey JCV (2007) Optimal intensity targets for greenhouse gas emissions trading under uncertainty. Environ Resour Econ 83:280–286 A: MIT PressGoogle Scholar
  21. Leeper EM (1991) Equilibria under active and passive monetary and fiscal policies. J Monet Econ 27:129–147CrossRefGoogle Scholar
  22. Newell RG, Pizer WA (2008) Indexed regulation. J Environ Econ Manage 56:221–233CrossRefGoogle Scholar
  23. Nordhaus WD (2008) A question of balance: weighing the options on global warming policies. Yale University Press, New HavenGoogle Scholar
  24. Nordhaus WD, Boyer J (2000) Warming the world: economic models of global warming. MIT Press, BostonGoogle Scholar
  25. Parry IWH, Williams RC III (1999) Second-best evaluation of eight policy instruments to reduce carbon emissions. Resour Energy Econ 21:347–373CrossRefGoogle Scholar
  26. Quirion P (2005) Does uncertainty justify intensity emission caps? Resour Energy Econ 27:343–353CrossRefGoogle Scholar
  27. Rotemberg J (1982) Monopolistic price adjustment and aggregate output. Rev Econ Stud 44:517–531CrossRefGoogle Scholar
  28. Schmitt-Grohé S, Uribe M (2004) Optimal fiscal and monetary policy under sticky prices. J Econ Theory 114:198–230CrossRefGoogle Scholar
  29. Schmitt-Grohé S, Uribe M (2007) Optimal simple and implementable monetary and fiscal rules. J Monet Econ 54:1702–1725CrossRefGoogle Scholar
  30. Schmitt-Grohé S, Uribe M (2012) An OLS approach to computing Ramsey equilibria in medium-scale macroeconomic models. Econ Lett 115:128–129CrossRefGoogle Scholar
  31. Smets F, Wouters R (2007) Shocks and frictions in US business cycles: a Bayesian DSGE approach. Am Econ Rev 97:586–606CrossRefGoogle Scholar
  32. Weitzman ML (1974) Prices vs quantities. Rev Econ Stud 41:477–491CrossRefGoogle Scholar
  33. Woodford M (2003) Interest and prices: foundations of a theory of monetary policy. Princeton University Press, PrincetonGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Università di Roma Tor VergataRomeItaly
  2. 2.Sogei S.p.A.RomeItaly

Personalised recommendations