Monetary Trade-offs: Stability vs. Renewables

This paper analyzes the spillovers of US monetary policy on renewable energy consumption (CRE) through financial stability channels, particularly through uncertainty amplification that reallocates resources from innovative green sectors. Using monthly data from January 1990 to June 2025, a VAR(4) model with Cholesky identification shows that federal funds rate hike shocks reduce CRE by up to -0.50% in the near term, simultaneously dampening volatility (-0.45 VIX index points) and inflation (-0.22%), but increasing uncertainty. Robustness checks, including sign restrictions, threshold VARs for nonlinearity, CRE disaggregation, and fiscal controls, confirm state-dependent effects moderated by financial development. Extending Cheng and Lin (2024), we highlight central bank dilemmas in green transitions, arguing for the need for targeted tools.