Armon Rezai, Rick van der Ploeg
Recently the CEO of Black Rock, Larry Fink, made headlines by predicting that climate policies could lead to a large inflation shock.
1 This is of first order importance for all central banks, in particular in light of the ECBs’ new strategy focus on climate risks. Will a secular increase in the price of carbon (and carbon equivalents) put upward pressure on the price level? How large is this effect likely to be? How much does this effect depend on the reaction of monetary policy? Should central banks take such risks into account in their strategies?