Monetary policy and renewable energy development: a cross-country perspective

Monetary policy shapes macroeconomic conditions and may influence renewable energy development, a key element of the transition to low-carbon growth. Using cross-country panel data covering the period from 2000 to 2021, this study investigates how the policy rate affects the development of renewable energy. Building on a standard transmission framework, the analysis considers firms’ investment behaviour and links Monetary policy to energy efficiency, credit conditions, and technological innovation. An empirical analysis is conducted using panel data methods, complemented by robustness checks to validate the results. The findings suggest that increases in the policy rate are associated with a decline in renewable energy development across countries. In terms of mechanisms, energy efficiency and credit conditions serve as key channels through which Monetary policy affects renewable energy, particularly in capital-intensive sectors. Although monetary tightening stimulates technological innovation, such technological innovation is largely concentrated in basic research and does not translate into applied technologies. The heterogeneity analysis further shows that the effects differ by income group and OECD membership status. The findings contribute cross-national empirical evidence and provide policy insights into how Monetary policy can be better designed to support the advancement of renewable energy.