Toward a Green Economy: The Role of the Central Bank's Asset Purchases

We use a DSGE model to study the effectiveness of greenasset purchases by the central bank (Green QE), along the transition to a carbon-free economy driven by an emission tax. In our baseline calibration, where green and brown goods are imperfect substitutes, Green QE helps to further reduce emissions, but the quantitative impact on pollution is small; the effects become slightly larger if the purchases are carried out in the early stage of the transition. The elasticity of substitution between green and brown goods is a crucial parameter: if the goods are imperfect complements, Green QE raises emissions.