Green Monetary Policy Measures and Central Bank Mandates: A Comparative Political Economy Analysis

Abstract

Climate change and the political pressure for urgent policy responses have stirred an intense debate as to whether central banks should adjust their monetary policy frameworks in support of the transition to a greener economy. Despite the seriousness of environmental issues and the seeming existence of monetary policy tools to address them, some economists and central bank officials argue that monetary authorities cannot, or should not, be responsible for making policies that act upon the source of those problems. Among other reasons, the adoption of green monetary policy measures can conflict with the primary monetary policy goals, compromise the political independence of central banks, and raise questions about the legitimacy and increased power of some of these banks. Yet, evidence shows that a number of monetary authorities have already adopted environmental criteria in their policymaking, resulting in an expansion of monetary policy toolkits and areas of responsibility. This article undertakes a comparative political economy analysis of the green monetary policy measures and legal mandates of 20 central banks, covering the period between January 2010 and January 2024. This article then examines the monetary policy decisions of two case study central banks, whose green strategies appear not to be fully aligned with their mandates. The empirical findings aim to contribute to the growing political economy literature and international debate on how central banks address pressures related to environmental concerns which, although vital to society and the planet, may pose challenges to conventional goals and established mandates.