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

Francesco Giovanardi

“The Preferential Treatment of Green Bonds”

Event description

Francesco Giovanardi presented the paper “The Preferential Treatment of Green Bonds” he co-authored with Matthias Kaldorf, Lucas Radke and Florian Wicknig. From the abstract:

We study the preferential treatment of green bonds in the Central Bank collateral framework as an environmental policy instrument. To evaluate the effects of preferential treatment, we build an augmented New-Keynesian model, in which green and conventional entrepreneurs issue defaultable bonds to banks that use them as collateral. Lenient collateral policy increases bond issuance and default risk, such that the Central Bank faces a financial stability trade-off between increasing collateral supply and subsidizing entrepreneur leverage. In a calibration to the Euro Area, optimal collateral policy features substantial preferential treatment, implying a green-conventional bond spread of 73bp. This increases the green bond share by 0.69 percentage points, while the green capital share increases by 0.32 percentage points, which in turn reduces pollution. The limited response of green investment is caused by higher risk taking of green entrepreneurs. When optimal Pigouvian taxation is available, optimal collateral policy does not feature preferential treatment, but still improves welfare by addressing adverse effects of taxation on financial stability.


Emanuele Campiglio
Associate Professor, University of Bologna

Francesco Giovanardi

Francesco Giovanardi received his PhD from Bocconi University in 2019 and joined the Center for Macroeconomic Research at University of Cologne as Assistant Professor in the same year. His research interest is in monetary economics and quantitative macroeconomics, where he focuses on the role of beliefs, financial frictions, heterogeneity, and their interaction for aggregate fluctuations. At the University of Cologne, he teaches monetary economics and advanced macroeconomics for the Economics’ Master and PhD.

Paper and slides

"The Preferential Treatment of Green Bonds" (paper)

"The Preferential Treatment of Green Bonds" (slides)



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