Going green: Will the r-star shine brighter?
Date : Jeudi | 2024-11-21 Ă 12h30
Lieu : Salle des thĂšses
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Marie JEZEQUEL-ROYER (LEO, UniversitĂ© dâOrlĂ©ans)
This paper assesses the impact of an orderly environmental transition (ET) on the Euro area natural rate of interest (r*), which is a key benchmark for monetary policy, financing conditions and the social cost of carbon. To this end, we use high-frequency identification methods, isolating carbon policy shocks from EU ETS futures price variations around regulatory announcements. We also use a finance-based r* derived from dynamic term structure models estimated on the prices of inflation-indexed bonds. We find a significant and persistent increase in r* following a positive carbon policy shock. Specifically, according to our estimates, reaching a carbon price of âŹ550 per ton of CO2 to reach Net Zero by 2050 could raise r* by 1.6 percentage points, ceteris paribus.