Abstract:
This paper examines the asymmetry in global spillovers from Fed policy across tightening versus easing episodes several examples of which have been on display since the global financial crisis (GFC). We build a dynamic general equilibrium model featuring: (i) occasionally binding collateral constraints in the financial sector with significant cross-border exposure; and (ii) global supply chains, allowing us to match the asymmetry of spillovers across contractionary versus expansionary monetary policy shocks. We find clear asymmetries in the transmission of US monetary policy, with significantly larger spillovers during contractionary episodes under both conventional and unconventional monetary policy changes. Our results also reveal that the greater the size of international credit and supply chain networks and the policymakers’ aversion to exchange rate fluctuations in the rest of the world, the greater the spillover effects of US monetary policy shocks.
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Prepared by Pedro Baptista, Colm Bates, Omiros Kouvavas, Pedro Neves and Katia Werkmeister
Understanding how consumers perceive drivers of inflation is crucial for interpreting shifts in their inflation expectations, which can significantly influence real economic decisions. The narratives consumers construct to explain inflation play a key role in shaping their expectations, with different drivers – such as wages or profits – implying different degrees of inflation persistence.[1] To explore this further, in June 2023 and March 2024 the ECB’s Consumer Expectations Survey (CES) asked consumers to select what they thought had been the main driver of the 2022-23 surge in inflation from three answer options: firms’ profits, wage costs, or other input costs. While consumer perceptions shifted, notably in the lead-up to early 2024, they have since stabilised, making the March 2024 survey data indicative of broader trends. Analysing these evolving perceptions helps explain adjustments in inflation expectations and how shifts in macroeconomic narratives affect inflation dynamics going forward.
In March 2024 most consumers in the euro area attributed the 2022-23 surge in inflation mainly to (other) input costs, followed by profits and wages. Panel a) of Chart A shows the percentages of respondents selecting each option for each country. Other input costs (e.g. energy, raw materials or other business costs) was selected as the main driver by 66% of euro area respondents, followed by firms’ profits (20%) and wages (14%). While this ranking of inflation drivers was common across individual countries, there was considerable variation in the frequency of each answer. The order of the countries is based on the percentage of respondents selecting wages as the main driver. The Netherlands (27%) and Belgium (22%) lead this ranking, with Austria (19%) and Germany (17%) following closely behind, and France (9%), Finland (8%) and Greece (8%) at the bottom. In Greece, a noticeable percentage of consumers (43%) believe firms’ profits were the main driver of inflation.

Chart A
Perceived main driver of inflation

a) By country
(percentages of respondents)

b) Change between June 2023 and March 2024
(percentage point changes; annual percentage changes)

Sources: ECB Consumer Expectations Survey (CES), Eurostat and ECB calculations.
Notes: Panel a): Weighted estimates. Percentages of respondents selecting each option per country in March 2024. The question in the CES reads as follows: “According to your view, what is the main factor driving the change in the general level of prices for goods and services in your country during the past 12 months”. The answer options were: “1. The main driver is firms’ profits; 2. The main driver is wage costs for firms; 3. The main driver is other input costs for firms (e.g. energy, raw materials or other business costs)”. Panel b): The bars refer to weighted estimates of the change in the percentages of respondents selecting each answer option between June 2023 and March 2024. The coloured points refer to the annual percentage changes in the second quarter of 2024 for unit labour costs, energy inflation and unit profits, as derived from official data.

 
Compared with June 2023, consumers’ perceptions of the main drivers of inflation shifted towards wages, although other input costs were still seen as the strongest driver overall. The question on the perceived main driver of inflation was first posed in the June 2023 CES and repeated in the March 2024 CES.[2] Panel b) of Chart A shows the change in the percentages of respondents selecting each answer option between June 2023 and March 2024 for the euro area as a whole. The percentage of consumers selecting firms’ profits decreased by 5 percentage points, while the percentage selecting wage costs increased by 6 percentage points. This is in line with developments in wage growth and unit profits over the same period. The percentage of respondents selecting other input costs remained broadly constant, changing only by less than 1 percentage point.

Chart B
Wages as the main driver of inflation

a) By respondent educational level and age
(percentages of respondents)

b) By country and wage growth level
(percentages of respondents; annual percentage changes)

Source: ECB Consumer Expectations Survey (CES).
Notes: Weighted estimates. Percentage of respondents selecting wages as the main driver of inflation per country in March 2024. Negotiated wages refers to the annual growth rate, including one-off payments, for the first quarter of 2024.

 
Consumers selecting wages as the main driver of inflation are generally younger, without a college degree and live in countries where wage growth has been relatively high in the past year. Panel a) of Chart B shows the prevalence of wages as the main driver of inflation according to educational level and age. A possible explanation for this finding is that recent wage growth has been particularly strong among minimum-wage employees, who typically have a lower level of education and are in the younger age group. Furthermore, in countries where past wage growth has been high, a greater proportion of respondents tend to select wages as the main driver of inflation (Chart B, panel b).
Changes in consumer perceptions of the main drivers of inflation follow recent developments. Wages have gained more weight in their perceptions, while the role of profits has waned, in line with recent developments in wages and unit profits. Such changes demonstrate how narratives about inflation are reflected in consumer perceptions of the main drivers of inflation, which, in turn, may affect how they form their inflation expectations. This therefore highlights the importance of monitoring shifts in inflation narratives.

 For empirical evidence, see Andre, P. et al., “Narratives about the Macroeconomy”, Discussion Paper, No 17305, Centre for Economic Policy Research (CEPR), May 2022.
The findings from the June 2023 CES are presented and discussed in the box entitled “What do consumers think is the main driver of recent inflation?”, Economic Bulletin, Issue 6, ECB, 2023.

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Growth is projected to hold steady, but amid weakening prospects and rising threats, the world needs a shift in policy gears
Blog Post by Pierre-Olivier Gourinchas | Let’s start with the good news: it looks like the global battle against inflation has largely been won, even if price pressures persist in some countries. After peaking at 9.4 percent year-on-year in the third quarter of 2022, we now project headline inflation will fall to 3.5 percent by the end of next year, slightly below the average during the two decades before the pandemic. In most countries, inflation is now hovering close to central bank targets, paving the way for monetary easing across major central banks.

The global economy remained unusually resilient throughout the disinflationary process. Growth is projected to hold steady at 3.2 percent in 2024 and 2025, but some low-income and developing economies have seen sizable downside growth revisions, often tied to intensifying conflicts.

In advanced economies, growth in the United States is strong, at 2.8 percent this year, but will revert toward its potential in 2025. For advanced European economies, a modest growth rebound is expected next year, with output approaching potential. The growth outlook is very stable in emerging markets and developing economies, around 4.2 percent this year and next, with continued robust performance from emerging Asia.

The decline in inflation without a global recession is a major achievement. As Chapter 2 of our report argues, the surge and subsequent decline in inflation reflects a unique combination of shocks: broad supply disruptions coupled with strong demand pressures in the wake of the pandemic, followed by sharp spikes in commodity prices caused by the war in Ukraine.
These shocks led to an upward shift and a steepening of the relationship between activity and inflation, the Phillips curve. As supply disruptions eased and tight monetary policy started to constrain demand, normalization in labor markets allowed inflation to decline rapidly without a major slowdown in activity.
Clearly, much of the disinflation can be attributed to the unwinding of the shocks themselves, together with improvements in labor supply, often linked to increased immigration. But monetary policy played a decisive role by keeping inflation expectations anchored, avoiding deleterious wage-price spirals, and a repeat of the disastrous inflation experience of the 1970s.
Despite the good news on inflation, downside risks are increasing and now dominate the outlook. An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets. Shifts toward undesirable trade and industrial policies can significantly lower output relative to our baseline forecast. Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly.
The return of inflation near central bank targets paves the way for a policy triple pivot. This would provide much-needed macroeconomic breathing room, at a time where risks and challenges remain elevated.
The first pivot—on monetary policy—is under way already. Since June, major central banks in advanced economies have started to cut policy rates, moving toward a neutral stance. This will support activity at a time when many advanced economies’ labor markets are showing signs of cooling, with rising unemployment rates. So far, however, the rise in unemployment has been gradual and does not point to an imminent slowdown.

Lower interest rates in major economies will ease the pressure on emerging market economies, with their currencies strengthening against the US dollar and financial conditions improving. This will help reduce imported inflation, allowing these countries to pursue their own disinflation path more easily.
However, vigilance remains key. Inflation in services remains too elevated, almost double pre-pandemic levels. A few emerging market economies are facing a resurgence of inflationary pressures and have started to raise policy rates again.
Furthermore, we have now entered a world dominated by supply disruptions—from climate, health, and geopolitical tensions. It is always harder for monetary policy to contain inflation when faced with such shocks, which simultaneously increase prices and reduce output.
Finally, while inflation expectations remained well-anchored this time, it may be harder next time, as workers and firms will be more vigilant about protecting pay and profits.
The second pivot is on fiscal policy. Fiscal space is a cornerstone of macroeconomic and financial stability. After years of loose fiscal policy in many countries, it is now time to stabilize debt dynamics and rebuild much-needed fiscal buffers.
While the decline in policy rates provides some fiscal relief by lowering funding costs, this will not be sufficient, especially as long-term real interest rates remain far above pre-pandemic levels. In many countries, primary balances (the difference between fiscal revenues and public spending net of debt service) need to improve.
For some, including the United States and China, current fiscal plans do not stabilize debt dynamics. In many others, while early fiscal plans showed promise after the pandemic and cost-of-living crises, there are increasing signs of slippage.
The path is narrow: delaying consolidation increases the risk of disorderly market-imposed adjustments, while an excessively abrupt turn toward fiscal tightening could be self-defeating and hurt economic activity.

Success requires implementing a sustained and credible multi-year adjustments without delay, where consolidation is necessary. The more credible and disciplined the fiscal adjustment, the more monetary policy can play a supporting role by easing policy rates while keeping inflation in check. But the willingness or ability to deliver disciplined and credible fiscal adjustments have been lacking.
The third pivot—and the hardest—is toward growth-enhancing reforms. Much more needs to be done to improve growth prospects and lift productivity, as this is the only way we can address the many challenges we face: rebuilding fiscal buffers; coping with aging and shrinking populations in many parts of the world; tackling the climate transition; increasing resilience, and improving the lives of the most vulnerable, within and across countries.
Unfortunately, growth prospects for five years from now remain lackluster, at 3.1 percent, the lowest in decades. While much of this reflects China’s weaker outlook, medium-term prospects in other regions, including Latin America and the European Union, have also deteriorated.
Faced with increased external competition and structural weaknesses in manufacturing and productivity, many countries are implementing industrial and trade policy measures to protect domestic workers and industries. But external imbalances often reflect macroeconomic forces: a weakening domestic demand in China, or excessive demand in the United States. Addressing these will require setting the macro dials appropriately.
Moreover, while industrial and trade policy measures can sometimes boost investment and activity in the short run—especially when relying on debt-financed subsidies—they often lead to retaliation and fail to deliver sustained improvements in standards of living. They should be avoided when not carefully addressing well-identified market failures or narrowly defined national security concerns.
Economic growth must come instead from ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, further economic integration and stimulate productive private investment.
Yet while reforms are as urgent as ever, they often face significant social resistance. How can policymakers win the support they need for reforms to succeed?
As Chapter 3 of our report shows, information strategies can help but can only go so far. Building trust between government and citizens—a two-way process throughout the policy design—and the inclusion of proper compensation to offset potential harms, are essential features.
Building trust is an important lesson that should also resonate when thinking about ways to further improve international cooperation and bolster our multilateral efforts to address common challenges, in the year that we celebrate the 80th anniversary of the Bretton Woods institutions.
—This blog is based on the October 2024 World Economic Outlook. For more, see blog posts on the report’s analytical chapters: Global Inflationary Episode Offers Lessons for Monetary Policy and Support for Economic Reforms Hinges on Communication, Engagement, and Trust.

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Tokenisation has the potential to offer benefits to the financial system, such as increased efficiency and transparency, but it may also have financial stability implications.
This report is focused on a subset of tokenisation initiatives – tokenisation based on distributed ledger technology (DLT) as the underlying technology platform – assessed to be the most relevant for financial stability based on recent market developments. In particular, the report focuses on the tokenisation of financial assets, such as tokenised money that may potentially be used as a settlement asset for payments and other financial assets. It does not examine tokenisation initiatives involving central bank digital currencies (CBDCs) or crypto-assets.
The report analyses recent developments in DLT-based tokenisation, including the potential uses of tokenised assets and their interaction with the traditional financial system.
The limited publicly available data on tokenisation suggest that its adoption is very low but appears to be growing. Owing to its small scale, tokenisation does not, therefore, currently pose a material risk to financial stability. Nevertheless, the report identifies several financial stability vulnerabilities associated with DLT-based tokenisation, which relate to liquidity and maturity mismatch; leverage; asset price and quality; interconnectedness; and operational fragilities. Tokenisation could have implications for financial stability if the tokenised part of the financial system scales up significantly, if increased complexity and opacity of tokenisation projects lead to unpredictable outcomes in times of stress, and if identified vulnerabilities are not adequately addressed through oversight, regulation, supervision, and enforcement.
The report reviews the financial stability implications of these identified vulnerabilities and sets out considerations for the FSB and relevant standard-setting bodies.
 
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Washington, D.C. – October 21, 2024: The Principality of Liechtenstein became a member of the IMF today when Prime Minister Daniel Risch signed the Fund’s Articles of Agreement during a ceremony in Washington D.C.
Liechtenstein applied for IMF membership in May 2023 (See Press Release 23/190). Subsequently, an IMF team visited Vaduz during November 27-December 8, 2023 (See Press Release 23/430). The principality’s decision to join the IMF was confirmed by a majority in a national referendum conducted on September 22, 2024. The initial quota[1] for Liechtenstein is SDR 100 million (about US$134.7 million).
After the signing ceremony, IMF Managing Director Kristalina Georgieva met with Prime Minister Daniel Risch at IMF headquarters and issued the following statement:
“I am delighted to welcome Liechtenstein as the 191st member of our global IMF community. This membership signifies Liechtenstein’s commitment to upholding the highest standards of economic policy and cooperation on the international stage. The IMF will work closely with the authorities to support Liechtenstein’s efforts toward sustainable growth and further integration into the global economy.”
“Liechtenstein is joining the IMF at a time when our members and the global economy are navigating greater uncertainty and long-term challenges such as economic fragmentation and climate change. This accession reaffirms the important role entrusted to the IMF in fostering global economic cooperation and stability. Together, we will build a more inclusive and sustainable economic future for all members.”
Prime Minister Daniel Risch added: “The Government is very pleased that Liechtenstein was able to join the IMF as the 191st member, this Monday, October 21. As a small country with limited administrative resources, we reflect carefully before joining international organizations, evaluating not only the consequences and benefits of what the organization can bring us – but also what we can bring to the organization ourselves. Liechtenstein will be a committed and dedicated member of the Fund. We’re looking forward to engaging constructively to advance international economic resilience and stability.”
[1] A member’s quota in the IMF determines its capital subscription, voting power, access to IMF financing, and allocation of SDRs.
 
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Program will drive U.S. leadership in semiconductors as well as provide the critical technology and skilled workforce needed for U.S. semiconductor packaging
Today, the Biden-Harris Administration issued a Notice of Funding Opportunity (NOFO) funded by the CHIPS and Science Act to enable the United States semiconductor industry to adopt innovative new advanced packaging flows for semiconductor technologies. This investment comes as part of the President’s overarching Investing in America agenda, which is increasing American competitiveness and boosting manufacturing in industries of the future.
Semiconductor packaging allows multiple components to be brought together as a single electronic device. Advanced packaging brings those components together in novel ways that improves performance of chips while reducing cost and power consumption. CHIPS for America anticipates making available up to approximately $1.6 billion for funding multiple awards across five research and development (R&D) areas, with the potential for follow-on funding for prototyping activities. This funding opportunity furthers the National Advanced Packaging Manufacturing Program’s (NAPMP) mission to establish a vibrant, self-sustaining, and profitable, domestic advanced packaging industry in the United States.
“Securing domestic packaging capabilities is a key part of our mission to expand domestic semiconductor manufacturing. The Biden-Harris Administration’s investments in the NAPMP, including the advanced packaging piloting facility, expected to be announced later this year, will bring innovative and new technologies directly to American manufacturers and consumers – helping achieve the economic and national security goals of the CHIPS and Science Act,” said Secretary of Commerce Gina Raimondo.
Investing in R&D has never been more important to drive advances in semiconductor technology and establish leading-edge domestic capacity for semiconductor advanced packaging. Emerging artificial intelligence (AI)-driven applications are pushing the boundaries of current technologies like high performance computing and low power electronics, requiring leap-ahead advances in microelectronics capabilities, especially advanced packaging. Solving technical challenges in advanced packaging will help U.S. manufacturers compete globally.
“This ambitious funding opportunity is designed to fill key technology gaps in advanced packaging to ensure U.S. leadership in the global semiconductor ecosystem,” said Under Secretary of Commerce for Standards and Technology and National Institute of Standards and Technology (NIST) Director Laurie E. Locascio. “CHIPS for America is delivering on its mission to create a domestic packaging industry where advanced node chips manufactured in the U.S. and abroad can be packaged within the United States.”
“Under President Biden and Vice President Harris’ leadership, we have moved out to bring leading-edge semiconductor manufacturing back to the United States,” said Assistant to the President for Science and Technology and Director of the White House Office of Science and Technology Policy Arati Prabhakar. “CHIPS R&D is the next step to create fresh opportunities for semiconductor manufacturing and jobs here at home. Investments like this one in innovative advanced packaging R&D will help American companies create the transformative pathways that we need to win the future.”
This funding opportunity spans five R&D areas to address key challenges and technology gaps in advanced packaging detailed in the NAPMP Vision Paper:

Equipment, Tools, Processes, and Process Integration
Power Delivery and Thermal Management
Connector Technology, Including Photonics and Radio Frequency (RF)
Chiplets Ecosystem
Co-design/Electronic Design Automation (EDA)

This multilayered approach targets R&D efforts that are complementary to one another, and will ultimately translate into results that can be integrated collectively and seamlessly into existing advanced packaging manufacturing processes for semiconductors. Expected outcomes from R&D efforts include new prototypes and innovative advanced packaging flows suitable for adoption by the U.S. semiconductor industry.
CHIPS for America anticipates making available up to approximately $1.6 billion in funding across multiple awards of varying size and scope. Anticipated amounts will vary by R&D area and range from approximately $10 million to approximately $150 million in Federal funds per award, with awards being made over a five-year period of performance. Additionally, CHIPS for America anticipates reserving up to $50 million to support awardees’ future prototyping activities, to be conducted at the anticipated National Semiconductor Technology Center (NSTC) Prototyping and NAPMP Advanced Packaging Piloting Facility.
 
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Five international organisations today released a landmark report that outlines pathways for co-ordinated approaches on climate action, carbon pricing, and the cross-border effects of climate change mitigation policies with a view to achieving global climate goals.
The report was presented on 23 October by the Joint Task Force on Climate Action, Carbon Pricing, and Policy Spillovers, convened by the World Trade Organization and joined by the International Monetary Fund, the Organisation for Economic Co-operation and Development, United Nations Trade and Development (UNCTAD), and the World Bank.
Entitled Working Together for Better Climate Action: Carbon Pricing, Policy Spillovers, and Global Climate Goals, the report arrives at a time when countries around the world are scaling up actions to curb climate change. Mitigation policies are on the rise, including carbon pricing policies, with 75 carbon taxes and emission trading schemes currently in effect worldwide, covering approximately 24 per cent of global emissions.
The report stresses that climate action needs to be stepped up to meet global emission reduction targets, while contributing to broader development goals. It also makes four important contributions to that end:

The report provides a common understanding of carbon pricing metrics to improve transparency on how countries are shifting incentives for decarbonisation.

The report examines the composition of climate change mitigation policies, emphasising the important role of carbon pricing as a cost-effective instrument that also raises revenues.

It outlines how international organisations can support the co-ordination of policies to foster positive and limit negative cross-border spillovers from climate change mitigation policies. The report also analyses the advantages and disadvantages of carbon border adjustment policies, including their impact on developing countries.

It shows how such co-ordination can help to scale up climate action by closing the transparency, implementation and ambition gaps.

The report also makes clear that international organisations’ future work can help fill important knowledge gaps. These include a need for more granular and better data on embedded carbon prices and embedded emissions, the design of border adjustment policies and their interoperability, and other approaches to enhance co-operation to increase ambition and ensure a just transition for all.
OECD Secretary-General Mathias Cormann said: “Countries currently take different approaches to reduce emissions, but achieving net zero requires us to align these efforts for a truly global impact. The OECD’s Inclusive Forum on Carbon Mitigation Approaches, now with 59 members, is bringing together national perspectives and building a common understanding of climate policies and their effects. More coherent and better-co-ordinated global mitigation policies can help prevent negative cross-border impacts such as carbon leakage or trade distortions, while maximising opportunities for innovation, cost savings and shared benefits from the climate transition.”
WTO Director-General Ngozi Okonjo-Iweala said: “Trade-related climate policies are on the rise, with over 5 500 measures linked to climate objectives notified to the WTO from 2009-22. Such policies lead to cross-border spillovers which can increase trade tensions and retaliatory trade actions. Future work by international organisations should focus on concrete ways to come to the co-ordination of more ambitious carbon pricing policies which help to close the climate action gap and address their cross-border spillovers. This may require a framework to ensure interoperability between carbon pricing and other climate mitigation policies.”
IMF Managing Director Kristalina Georgieva said: “This joint report of the five institutions highlights why carbon pricing and equivalent policies are important to scale up climate action. Global emissions need to be cut urgently to put the world on track to achieve the Paris goals and global ambition needs to be doubled to quadrupled. Carbon pricing should be an integral part of a well-designed policy mix, complemented with public investment support and sectoral policies, and international co-ordination on mitigation action could unlock progress.”
UNCTAD Secretary-General Rebeca Grynspan stated: “To ensure a just and green transition, UNCTAD encourages and supports developing countries in crafting the right policy mix to advance climate mitigation. We are strengthening our research and providing a safe space for dialogue to ensure that climate-related measures, including Border Carbon Adjustments mechanisms (BCAs) are evidence based and minimize negative spillovers on developing countries and other sustainable development goals. This is especially critical for less advanced economies, which often have limited productive capacity, infrastructure for monitoring, verification, reporting, and fiscal space. We are committed to helping developing countries decarbonise and diversify their economies by seizing environmental-related export opportunities and working with our member states to reduce the compliance and trade costs associated with these transitions.”
Axel van Trotsenburg, World Bank’s Senior Managing Director (SMD), said: “Through its technical assistance and financing, the World Bank helps countries make sure climate policies are tailored to each country’s context, capacities, political constraints, and development priorities. We think carbon pricing can play a central role in these policies, because it provides the right incentive for the private sector and creates public revenues to support broad development progress and help vulnerable populations manage the green energy transition. But with every country introducing their own climate policies, there is also a growing need for more co-operation and co-ordination. The product of in-depth exchanges across five international organisations, this report provides concrete ideas to make sure climate policies are designed in ways that benefit lower-income economies and help them accelerate their development, create jobs, and participate in global value chains.”
The report is available here.
 
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Non-Technical Summary
One of the most dramatic trends in financial markets over the last decade has been the rise of sustainable investing. Many prominent institutions, such as the European Central Bank, now publicly support sustainable investing. It is often argued that sustainable investing can incentivize firms to act more sustainably by decreasing the cost of capital firms have to pay for their green investments.
Despite the prominence of this idea, it is unclear whether sustainable investing influences firm behavior through a cost of capital channel. So far, it has been difficult to estimate firms’ cost of capital reliably using financial market data, leading to conflicting results and uncertainty about the impact of sustainable investing. Moreover, even if sustainable investing influences the cost of capital in financial markets, this influence may not be incorporated into firms’ perceptions of their cost of capital, eliminating potential real effects of sustainable investing through the cost of capital channel.
We directly study how firms’ perceptions of their cost of capital have responded to the rise of sustainable investing. We use data from corporate conference calls (meetings between firm managers, financial analysts, and investors). Our measures of firms’ perceived cost of capital directly capture an input into firms’ investment decisions and allow us to produce relatively precise estimates of how the cost of capital differs between green and brown firms.
Our main finding is that the perceived cost of capital has dropped substantially for green firms since the rise of sustainable investing. Up until 2016, the perceived cost of capital of green firms was close to that of brown firms. But as sustainable investing surged after 2016, the perceived cost of capital of green firms fell substantially relative to that of brown firms. On average, the perceived cost of capital of green firms is 1 percentage point lower than that of brown firms between 2016 and 2023.
We also find that some of the largest energy and utility firms have started applying a lower perceived cost of capital and discount rate to their greener divisions, such as renewable energy divisions, after 2016. Finally, firms facing a higher spread between the cost of green and brown capital in their sector have pledged to reduce emissions by more, consistent with changes in the cost of capital affecting real outcomes. Together, the results are consistent with the view that sustainable investing is associated with reductions in the perceived cost of green capital and with capital reallocation toward green investments.
Read the working paper here.
 
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