Template-Type: ReDIF-Paper 1.0
Author-Name: Gregor Boehl
Author-X-Name-First: Gregor
Author-X-Name-Last: Boehl
Author-Name: Flora Budianto
Author-X-Name-First: Flora
Author-X-Name-Last: Budianto
Author-Name: Elod Takats
Author-X-Name-First: Elod
Author-X-Name-Last: Takats
Title: The macroeconomics of green transitions
Abstract: The paper investigates the macroeconomics of an energy transition – a shift from brown to green energy production through carbon taxation. Using a medium-scale DSGE model with energy production sectors and endogenous innovation in the green energy sector, we show that an energy transition – initiated through a brown energy tax – resembles a large supply side shock, causing a surge in inflation and energy prices and a decline in consumption. Innovation increases the efficiency of green energy production and drives energy prices down in the medium run. We document that monetary policy plays a critical role for the dynamics and pace of the transition, even if the transition is not explicitly part of the policy rule. A monetary policy with less emphasis on inflation stabilization allows for temporarily higher inflation and energy prices, which boosts R&D and innovation, enhancing welfare and accelerating the transition.
Creation-Date: 2024-12
File-URL: https://www.bis.org/publ/work1237.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1237.htm
File-Format: text/html
Number: 1237
Keywords: energy transition, innovation, inflation dynamics, monetary policy
Classification-JEL: O44, E31, E52, E58
Handle: RePEc:bis:biswps:1237