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Greenhouse Gas Abatement and Monetary Policy

The RBNZ is quite possibly the world’s first central bank to reference greenhouse gas abatement in explaining the current stance of monetary policy.  According to today’s RBNZ intra-quarter policy review:

There are a number of other upside risks to inflation, including the direct effects of the proposed greenhouse emissions trading scheme and rising global food prices.

Greenhouse gas abatement is analogous to a negative short-run supply shock in its implications for monetary policy, except that it is self-imposed restriction on supply and therefore not strictly a shock.  Couple this with the existing global demand shock emanating from the emerging market economies and monetary policymakers are increasingly going to have their work cut out for them.

posted on 24 October 2007 by skirchner in Economics, Financial Markets

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