The E-axes Forum on Climate Change, Macroeconomics, and Finance

Greenflation and implications for monetary policy

The recent experience with surging inflation, partly driven by supply shocks to the energy sector, has ampiflied concerns over “greenflation,” inflationary pressures resulting from the transition to sustainable energy sources. For this digest Conny Olovsson (ECB and Sveriges Riksbank) and David Vestin (Sveriges Riksbank) have curated the most recent literature on the theoretical and empirical findings on how greenflation arises and what central banks can do to curb it. They, and the papers they have chosen, highlight the central role for foresighted monetary policy as well as a smooth carbon taxation path.

The impact of climate change on price stability

To secure price stability and fulfill their primary mandate, policymakers should act promptly: interest rate management, expectation anchoring, financial stabilization, cooperation with fiscal authorities are just some of the tools at their disposal.

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