Environmental Policy and Macroeconomic Dynamics in a New Keynesian Model

Barbara Annicchiarico, Fabio Di Dio
2013 Social Science Research Network  
This paper studies the dynamic behaviour of an economy under different environmental policy regimes in a New Keynesian model with nominal and real uncertainty. We find the following results: (i) an emissions cap policy is likely to dampen macroeconomic fluctuations; (ii) staggered price adjustment alters significantly the performance of the environmental policy regime put in place; (iii) the optimal environmental policy response to shocks is strongly influenced by the degree to which prices
more » ... to which prices adjust and by the monetary policy reaction.
doi:10.2139/ssrn.2332124 fatcat:d7gac5plezehror6idff47gtme