The Impact of Economic Factors on Environmental Degradation: Price Instability, Monetary Growth and Renewable Energy Investments

Abstract

PurposeThis study examines the complex relationship between price stability, monetary growth and renewable energy investments. The pursuit of environmentally sustainable economies is intertwined with the need to maintain price stability and poses a complex challenge for global policymakers.Design/methodology/approachThrough a comprehensive review, this study seeks answers to how price stability affects pollution, particularly carbon emissions, through various economic channels. Employing panel data analysis for 84 countries between 1999 and 2020, we find a multifaceted effect of price instability on carbon emissions.FindingsAccording to system-GMM estimation results, we find (1) price stability has no significant direct effect on carbon emissions. However, it emerges as a crucial environmental factor through consumption, investment and monetary policy channels. (2) Moreover, price stability reverses the positive effects of renewable energy investments on carbon emissions, and it slows down the carbon emissions-increasing effect of energy consumption. (3) Monetary expansion combined with price stability increases environmental pollution. These findings underscore the complexity of balancing economic stability and environmental sustainability and highlight the need for comprehensive policy approaches to address these global challenges effectively.Originality/valueThere is a significant gap in the existing literature examining the impact of price stability on carbon emissions. Most of the studies observe the impact of carbon emissions on inflation. However, the complex interaction between economic and environmental factors reveals inflation as a factor affecting pollution, particularly the amount of carbon emissions.