Is the Green Transition Inflationary?
![one male engineer checking the solar panel with digital tools](https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2023/02/LSE_2023_climate-inflation_digiovanni_460.jpg?w=920)
Are policies aimed at fighting climate change inflationary? In a new staff report we use a simple model to argue that this does not have to be the case. The model suggests that climate policies do not force a central bank to tolerate higher inflation but may generate a trade-off between inflation and employment objectives. The presence and size of this trade-off depends on how flexible prices are in the “dirty” and “green” sectors relative to the rest of the economy, and on whether climate policies consist of taxes or subsidies.