Environmental regulation, banking risk and green finance policy: A DSGE approach

The paper constructs a multi-sector DSGE model to examine the effects of environmental regulation policies and green finance policies under different proportions of green enterprises, and analyze the coordination effects of the two policies. The results show that: When the proportion of green enterprises is low, environmental regulatory policies curbs pollution but heightens bank credit risk, while green finance mitigates bank credit risk yet yields only modest emission reductions. Both policies have negative effects on the economy. When the proportion of green enterprises gradually rises, the negative impact of the two policies gradually fade. When the proportion of green enterprises is relatively low, the combination of the two policies can not only reduce emissions, but also avoid bank credit risks and negative economic effects, hence policy coordination is essential. When the proportion of green enterprises is low, higher policy intensity leads to larger welfare losses. When the proportion of green enterprises is high, environmental regulation policies do not impose large welfare losses. Therefore, when formulating policies, the government should also consider policy coordination in different periods and formulate different policies for different periods.