The ECB and Its Watchers XXII - Debate 2: Monetary Policy and Climate Change

Debate 2: Monetary Policy and Climate Change
Chair:
Daniel Gros (Centre for European Policy Studies)
Speakers:
Isabel Schnabel (European Central Bank)
Monika Piazzesi (Stanford University)
Hans Peter Grüner (University of Mannheim)
Lead questions:
Ulrich Kater (Deka)
Jari Stehn (Goldman Sachs)
Thomas Möllers (University of Augsburg)
Slides are available on our website: www.ecbwatchers.eu
Opening the second panel on climate change, ECB Board Member Isabel Schnabel sees a new age of energy inflation, consisting of "climateflation," "fossilflation," "greenflation." "As the number of natural disasters and severe weather events is rising, so is their impact on economic activity and prices," she said with regard to climate change. "Fossilflation," according to Schnabel, "is to blame for much of the recent strong increase in euro area inflation." Concerning the green transition, Schnabel argued that "as more and more industries switch to low-emission technologies, greenflation can be expected to exert upward pressure on prices of a broad range of products during the transition period." Overall, "monetary policy cannot simply ignore the effects of the green transition if they threaten to jeopardize the achievement of our primary mandate of price stability." At this point, however, she sees fiscal policy "to remain in the driving seat" as "fiscal policy also has an important role to play in buffering the current supply shocks."
In her intervention, Monika Piazzesi of Stanford University pointed out that regarding asset purchases, in the ECB portfolio sectors with high emission overweigh. But "investors are becoming more and more aware that are there is a climate risk."
With regard to green monetary policy, Hans Peter Grüner of the University of Mannheim warned against enlarging the scope of the ECB’s activities, comparing the central bank with an octopus. Instead, he called on the ECB to keep it simple, "particularly in times of inflation."