Green monetary policy to combat climate change: Theory and evidence of selective credit control

Recognizing climate change as a formidable threat to global economic stability, the study underscores the inadequacies of existing fiscal tools, such as carbon taxes and carbon trading, in effectively mitigating carbon emissions and explores the potential impact of climate-related uncertainties on the global financial and monetary system. The paper delineates the necessity of integrating environmental goals into monetary policy frameworks, proposing a Green Monetary Policy (GMP) Framework that explicitly incorporates emission reduction targets into traditional monetary instruments to confront the growing challenges of climate change. Innovating an economic model for the GMP, the paper presents nuanced insights into the potential role of central banks in addressing climate change. The consequent mathematical calibration and findings advocate for a strategic shift in credit allocation from high carbon-intensive activities to low carbon-emitting industries using selective credit control i