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Climate policy is macro policy: 2022 Volcker lecture at NABE conference


The economic environment is now very different from that which reigned since the global financial crisis. The long era of low inflation, suppressed volatility, and easy financial conditions is ending. It is being replaced by more challenging macro dynamics in which supply shocks are as important as demand shocks, increasing inflation, volatility, interest rates and risk premia. The reaction functions of central banks must adjust accordingly. Climate policy is becoming the third pillar of macro-economic policy. Its conduct will directly impact the efficacy of fiscal and monetary policies, and its interactions with the financial system will heavily influence the pace of job and wealth creation. Estimates suggest that, over the balance of this century, unaddressed climate change could cause the equivalent of a decade of no economic growth, with these losses staying lost. The transition to a net carbon zero economy consistent with limiting temperature rises to 1.5 degrees is forecast to avoid those losses but to put upward pressure on inflation during the initial decade of the transition, until the lower levelized costs of clean energy weigh on prices thereafter. The coordination of monetary, fiscal and climate policies can be expected to improve welfare. A net zero transition guided by credible and predictable policies will accelerate private sector investments, smooth inflationary pressures and improve growth. High and volatile inflation at least can be vanquished. It need not be a permanent condition. The same cannot be said of unaddressed climate change.

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  1. IEA (2021).

  2. As Jean Pisani-Ferry (2021) calculates, an increase of 2 percentage points (if at global level) would more than reverse the decline in the world investment ratio from 25.7% in 1980–89 to 24.3% in 2010–19.

  3. Roughly 36 gigatons of global carbon emissions (2019) would amount to 4.1 percentage points, or 3.7 percentage points above what he estimates as the current average carbon price of $10. In comparison, the 1974 oil shock resulted in the repricing of 19.7 billion barrels of oil from $3.3 to $11.6/barrel; the corresponding shock amounted to 3.6 percentage points of the 1973 global GDP.

  4. See

  5. Note: The corollary is that, in the face of a positive supply shock, the central bank should accommodate some ‘good disinflation/deflation’ for better inter-temporal substitution…a point missed by Greenspan et al. during the productivity boom, with consequences for financial bubbles and instability.


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Correspondence to Mark Carney.

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Paul A. Volcker Lifetime Achievent Award for Economic Policy address delivered at the NABE Policy Conferecnce, March 22, 2022. I am grateful to Regana Alicka, Zineb Bouzoubaa, Di Chen, Ronan Hodge, Maia Johnson, Simone Kramer, and Jen Nemeth for help in the preparation of this lecture, which also benefitted enormously from earlier conversations about the core ideas with Nabeel Abdoula, Jean Boivin, Gavyn Davies, Adam Posen and Jan Vlieghe, as well as from the debate and scrutiny at Secular Forum of the PIMCO Global Advisory Board. All errors and omissions remain my responsibility.

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Carney, M. Climate policy is macro policy: 2022 Volcker lecture at NABE conference. Bus Econ 57, 43–55 (2022).

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  • Climate change
  • Net-zero
  • Inflation
  • Central banking