The Impact of Monetary Policy on Climate Change: A Systematic Literature Review and Future Research Recommendations

Central banks’ efforts in combating climate change are now a rising topic of discussion. Until recently, environmental concerns were not the focus of central banks’ policies. As of writing this chapter, some central banks have already taken action to address climate change. However, this topic is highly debated as it is seen as a threat to central banks' policy effectiveness: it puts the policies under political pressure and risks their independence. To provide a comprehensive overview of the existing research on the subject, we conducted a systematic literature review of 20 empirical studies. Despite its importance, the impact of monetary policy on climate change has been understudied. This chapter summarizes the current debate and calls for action to central banks to be involved in the climate change issue. Moreover, the review seeks to inform policymakers about the potential impact of their policies on climate change, offering a foundation for their decision-making. Therefore, this review aims to not only summarize the existing empirical studies but also to suggest directions for future research.