The Impact of Monetary Policy on Environmental Degradation: A Comparative Analysis of Advanced and Emerging Economies1

This study examines the impact of monetary policy on environmental degradation by applying the two-step system generalised method of moments (GMM) methodology and utilising panel data from 58 countries (1995-2021). Additionally, a comparative analysis of advanced and emerging economies is conducted. The findings reveal that while expansionary monetary policy significantly increases environmental degradation in emerging economies, no significant relationship is observed in advanced economies. This underscores the critical need to integrate sustainability into monetary policy frameworks. It is vital for long-term sustainable growth that central banks assess the environmental impacts of their activities, prioritise green investments, and promote green financial instruments.