Is the Green Transition Inflationary? - FEDERAL RESERVE BANK of NEW YORK

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Is the Green Transition Inflationary?

Number 1053
February 2023 Revised November 2025

JEL classification: E12, E31, E52, Q54

Authors: Marco Del Negro, Julian di Giovanni, and Keshav Dogra

We develop a multisector New Keynesian model to analyze the macroeconomic effects of carbon taxes and show that they generate an inflation-output tradeoff whose size depends on the relative price flexibility of the sectors most affected (directly or indirectly) by the tax. When calibrated to U.S. input-output data and sectoral heterogeneity in emissions and price stickiness, the model matches empirical responses of price indices to an energy shock. A $100/metric ton CO2 tax substantially increases inflation if accommodated; curtailing this increase requires a prolonged contraction. Propagation via production linkages plays a key role.

Available only in PDF

Author Disclosure Statement(s)

Marco Del Negro
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper.

Julian di Giovanni
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper.

Keshav Dogra
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper.

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