Monetary policy transmission and environmental performance: firm-level evidence from high-frequency identification

Working paper

Firms with superior environmental performance exhibited substantial vulnerability to forward guidance shocks before 2015, but this vulnerability disappeared completely by 2017. Using high-frequency identification around 156 FOMC announcements spanning 2005-2025, we document that path surprises shifting long-horizon discount rates generated differential returns of 1.96 percentage points per standard deviation shock during the pre-Paris period, but this effect attenuated to economic and statistical insignificance post-2016. The structural break coincides precisely with explosive growth in green bond markets—expanding from £11 billion in 2013 to over £625 billion annually by 2024—and Paris Agreement implementation. Industry-by-event fixed effects isolate within-sector heterogeneity, while horizon decomposition reveals duration effects amplified forward guidance sensitivity pre-Paris and clientele effects provided modest current rate insulation throughout. Cross-sectional evidence indicates larger firms with superior market access exhibited attenuated vulnerability throughout, consistent with hedging capacity mechanisms. Results demonstrate environmental heterogeneity in monetary transmission evolved with financial market development rather than reflecting immutable technological constraints.

Authors: Kansoy, F; Stasiulaitis, D

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Place of publication: Oxford
• Publication date: 2025-12-04
• Paper number: 1094
• Language: English
• Keywords: asset pricing; environmental performance; high-frequency identification; green bonds; monetary policy transmission; ESG