How Does Unconventional Monetary Policy Guide Enterprises’ Green Transition?

Abstract

This study investigates the capacity of unconventional monetary policy (UMP) to facilitate enterprises’ transition towards environmentally sustainable practices. It posits that UMP can enhance financing conditions, support the economic viability of green activities and promote investments with a long-term environmental focus. We assess green transitions by measuring enterprises’ green total factor productivity (GTFP) using the slacks-based model. Additionally, we leverage the expansion of the collateral framework in China as a quasi-natural experiment to explore the nuanced effects of UMP on green transitions. Employing a difference-in-differences (DID) approach, our findings reveal that UMP significantly encourages enterprises, especially non-state-owned ones, to adopt greener practices. However, its impact is less pronounced for state-owned enterprises (SOEs) and those in capital-intensive sectors. To ensure the robustness of our results, we conducted various tests, confirming the reliability of our findings. This study demonstrates the effectiveness of UMP in green transitions, emphasizing its role in guiding enterprises toward preventive environmental strategies and offering key insights for policymakers.