A macroeconomic plan for a green recovery

A unique green opportunity has arisen for policy makers to create viable newmarkets, boost private investment and innovation, and stimulate the economy without requiring large public expenditure.

By sending a credible market signal in the form of clearly identified market-based policy instruments – involving long-term carbon pricing, standards and regulations, together with carefully designed technology support – the government has the potential to unlock private investment in renewable energy, energy efficiency and low-carbon vehicles.

It would do so by utilising the historically vast pool of available private saving. Standard macroeconomic theory and evidence suggests that in the current economic environment, this could unleash sizeable macroeconomic benefits by boosting private spending, creating jobs, generating tax revenues, and allowing the monetary authorities greater leeway to stimulate demand. Moreover, this private investment need not be expected to crowd out alternative capital expenditure or boost public borrowing.

Dimitri Zenghelis