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Tolerating overshooting inflation helps decarbonisation – study

Policy committed to stabilising output is best suited to green transition, say Bundesbank economists

Carbon price up

Allowing temporary inflation flare-ups when carbon taxes rise protects both output and employment, economists from the Deutsche Bundesbank have said.

In a research paper published on September 4, Marco Carli, Francesca Diluiso and Mathias Hoffmann argue that climate policies induce a trade-off between inflation and output, with efforts to limit the former depressing the latter. Carbon taxes raise energy prices and have a negative impact on demand by having distortionary effects on wages and

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