As an alarming new United Nations report shows, climate change is probably the biggest challenge of our time. But should central banks also be worrying about the issue? If so, what should they be doing about it? Central-bank representatives who do decide to make public speeches about climate change cannot deny the scale and scope of the problem; to do so would be to risk their own credibility. But the same is true when central bankers feel obliged to discuss the distribution of income and wealth, rising crime rates, or any other newsworthy topic. The more that central banks’ communications strategy focuses on trying to make themselves “popular” in the public’s eyes, the greater the temptation to address topics outside their primary remit. Beyond communicating with the public, the question, of course, is whether central banks should try to account for environmental considerations when shaping monetary policy. Obviously, climate change and corresponding government policies in response to it can have powerful effects on economic development. These consequences are reflected in all kinds of variables – growth, inflation, employment levels – that will in turn affect central-bank forecasts and influence monetary-policy decisions. To view the full article visit Project Syndicate.
