Environmental policy and macroeconomic dynamics in a new Keynesian model

摘要

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.