Network for Greening the Financial System publishes two reports on climate shocks and monetary policy strategy

The Network for Greening the Financial System has published two reports setting out how climate change and the transition to net zero emissions can affect central banks' monetary policy strategy. The reports focus on the implications for core price-stability mandates, arguing that physical climate impacts and transition policies can influence inflation, output and growth, and can create trade-offs between stabilising prices and supporting economic activity. The first report provides a practical guide for central banks. It sets out a framework for assessing climate-related inflation-output trade-offs, presents new quantitative analysis of physical and transition impacts, examines effects on monetary policy transmission and structural variables such as the natural rate of interest, and outlines communication approaches and a step-by-step process for responding to climate-related events. The second report uses the International Monetary Fund's Global Macroeconomic Model for the Energy Transition to assess climate mitigation policies and finds that the size of the policy trade-offs differs across jurisdictions and depends on the transition measures adopted. It concludes that trade-offs are smallest when transition policies are gradual and orderly, can become more substantial when policies are uncertain, and that the most severe climate impacts occur in the absence of transition.