Examining the Role of Monetary and Fiscal Policies in Improving Environmental Quality and Comparing It with Environmental Policies: An Application of the E-DSGE Model

Nowadays, achieving a balance between economic development goals and environmental protection has become one of the main priorities for policymakers. Using the E-DSGE model, this study introduces a new rule for fiscal and monetary policies and carbon taxation, aiming to regulate and stabilize carbon emission levels along with ensuring economic growth. It analyzes the interactions between fiscal and monetary policies and environmental policies. The findings indicate that while all the mentioned policies can bring carbon emissions close to the target level, their underlying mechanisms differ. Fiscal and monetary policies impact emissions by changing production levels, while environmental policies affect emissions by altering firms' spending on pollution reduction. In the presence of positive productivity shocks, fiscal policy is more effective in adjusting tax revenues, monetary policy in regulating prices, and environmental policy in modifying carbon emission intensity