Published in Journal of Post-Keynesian Economics
This paper explores the contribution of ecosystemic macroprudential regulations to the sustainable development goals in an ecological PK-SFC framework. We first discuss the link between banks and global warming; and present the case for connecting prudential regulation with planetary boundaries. We then report a set of simulations suggesting that in the short run, such ecosystemic prudential regulations could effectively green banks’ balance sheets and credit flows, and curtail brown investment; at the cost, however, of significant short-run output losses. In the longer run, the induced green transition sets the economy on a sustainable pathway, decreases inflationary pressures, and maintains real GDP at the baseline level, with favorable distributional effects for wage-earners. These results highlight the importance of a paradigm shift in prudential regulation in the fight against climate change.
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