THE IMPACT OF MONETARY POLICY ON GREEN INNOVATION: GLOBAL EVIDENCE

Abstract

This research investigates and robustly verifies the impact of expansionary monetary policy actions on green innovation, conducted on a panel covering 133 countries from 1960 to 2018. Overall, we find that such actions have a significantly positive effect on green innovation performance, no matter in the static or dynamic model. A lower degree of central bank independence and poorer property rights protection in developing countries may hinder monetary policies’ effect to be transmitted to green innovation activities smoothly. Moreover, stringent environmental regulation contributes to magnifying the expansionary monetary policy’s positive effect on green innovation, but such a positive moderating effect should be supported by good national governance quality (including better control over corruption, higher efficiency of governments and a complete law system). Accordingly, several policy suggestions are provided.