Determinants of Green Innovation: The Role of Monetary Policy and Central Bank Characteristics

Abstract

The current global energy crisis has prompted a comprehensive investigation into its influencing factors. It is hypothesised that a set of monetary, macro-environmental, and institutional variables causally affect the transition to green development in a holistic model. Monetary expansion and central bank characteristics are required for economic and environmental development. The current study investigates and rigorously verifies the impact of expansionary monetary policy actions on green innovation, using a panel of 109 countries from 2010 to 2018. Overall, specific actions have a substantial positive effect on the performance of green innovation. A rise in per capita GDP, government spending, and improvement in bureaucracy all promote green economic activity. Green innovation is significantly affected by developing nations’ central bank independence and lower interest rates. Expansionary monetary policy, central bank transparency, and energy variables promote green growth in developed countries and green innovation in Latin American countries and in East Asian and Pacific countries. Finally, green innovation is more affected by expansionary monetary policy in countries with high institutional quality, industrial concentration, and energy intensity, and inflation and trade openness serve as deterrents in the monetary expansion–green development nexus.