ESG policy uncertainty and monetary policy effectiveness: a cross-country perspective

ESG policy uncertainty may reshape monetary policy transmission during the green transition. We examine how global and domestic ESG policy uncertainty affects monetary policy effectiveness in China, the United States, and Japan. Extending a New Keynesian framework, we link ESG uncertainty to expected transition costs and risk premia that shift money demand and capital spreads. Bayesian VAR results show global ESG uncertainty dominates domestic shocks. China eases initially then tightens as spreads widen; the United States tightens persistently with strong spread repricing; Japan responds weakly. We provide cross-country evidence and a framework integrating ESG uncertainty into monetary policy analysis.