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Environmental policy and macroeconomic dynamics in a new Keynesian model
Institution:1. Università degli Studi di Roma “Tor Vergata”, Dipartimento di Economia, Diritto e Istituzioni, Via Columbia 2, 00133 Roma, Italy;2. Sogei S.p.a. - IT Economia - Modelli di Previsione ed Analisi Statistiche, Italy;1. Faculty of Business Studies and Economics, University of Bremen, Max-von-Laue-Straße 1, D-28259 Bremen, Germany;2. SPEA, Indiana University, 1315 E. Tenth Street, Bloomington, IN 47405-1701, United States;1. College of Economics and Management, Taiyuan University of Technology, Taiyuan 030024, China;2. School of Urban and Regional Science, Institute of Finance and Economics Research, Shanghai University of Finance and Economics, Shanghai 200433, China;3. Institute of Development, Southwest University of Finance and Economics, Chengdu, Sichuan 611130, China;4. School of Management, Harbin Institute of Technology, Harbin 150001, China
Abstract:This paper studies the dynamic behavior 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 adjust and by the monetary policy reaction.
Keywords:New Keynesian model  Environmental policy  Macroeconomic dynamics  Monetary policy
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