A growing body of literature proposes a climate-oriented monetary and financial policy for Central Banks (CBs). However, other literature defends a market-neutral monetary policy to keep CB independence and avoid addressing other than conventional objectives. However, if the CBs’ market-neutral policy is only targeting inflation rates and employment, it could amplify the macro impacts of negative economic externalities, while also neglecting positive externalities in the long-run. Even if climate-related policy goals appear advisable, the actions of CBs reveal significant delayed impacts on macro and climate-risk variables. We propose a non-linear dynamic macro model of finite horizon with multiple targets, including macro imbalances and climate risks arising from a trend in carbon emissions. This non-stationary emission dynamic has feedback effects on stationary and non-stationary macro variables and the multiple (possibly conflicting) objectives of the CBs. In this context, we first explore to what extent CBs can impact emission trends with and without delays. Second, given the mix of stationary and non-stationary dynamic variables, we explore the responses to policy and economic and financial shocks using a mixed Vector Error Correction Model (VECM) with stationary and non-stationary variables. Third, in the face of multiple objectives—and macroeconomic concerns that CBs face—we are motivated by Kaya and Maurer (2023) to construct a Pareto front that introduces weights for the multiple objectives and permits target prioritization.

Through its quantitative easing programme the Bank of England has looked to manage the supply of nominal UK government securities in order to lower interest rates. In doing so it has removed more than 25 per cent of the overall supply of those securities from the publicly accessible market. The benchmark New Keynesian model suggests this should only have an impact on interest rates insofar as it affects expectations of future policy rates, whilst alternative theoretical frameworks imply a direct effect of changes in supply onto yields. Our aim is to test for the existence of these potential transmission mechanisms. We find empirical evidence to support the existence of both channels. Our analysis suggests the Bank's quantitative easing programme reduced yields by around 25 basis points through the supply channel alone. Importantly, we find that such supply effects have remained significant in recent years, suggesting that as quantitative easing is unwound the increase in publicly available supply will put upward pressure on interest rates. Lastly we highlight the monetary-fiscal interaction inherent in our result and discuss some of the issues it raises for policymakers.