[20] The second scenario simulates a sudden, but moderate increase in the price of carbon to € per tonne. What we are looking at is therefore transition risks as the economy moves to carbon neutrality, not physical risks. The results show that credit risk in carbon-intensive sectors can cause banks to suffer losses.
An important – and in some countries the predominant – objective of monetary policy is price stability, which is measured in terms of inflation. There are, however, several measures of inflation which are prevalent, for example, inflation indices based on consumer prices and wholesale prices. Determining the appropriate inflation measure to be used for the purpose of calibrating monetary policy is, therefore, critical.