June 2023
Authors: Ying Tung Chan and Maria Teresa Punzi
To evaluate the quantitative impact of the transmission mechanism, we introduce distinct features to the E-DSGE framework, including endogenous capital utilisation, time-varying depreciation of capital, and environment quality shocks. We find that the complementarity between energy and capital leads to an amplification effect of the conventional transmission mechanism. Our model with these ingredients ranks any carbon tax below 25% as the best policy in terms of welfare improvement.