The required link for actions on green macroprudential implementations to improve circularity performance in Europe: Fresh insights from PVAR

Green macroprudential policies are expected to be essential tools for maintaining sustainable development by striking a balance between economic growth and environmental sustainability. Our study used a Panel Vector Autoregressive (PVAR) model to examine the relationship between green macroprudential policies and circularity performance from 28 countries between 2005 and 2022. Our findings reveal that green macroprudential policies do not affect circularity in the short term but enhance its efficiency in the long term. Furthermore, while the immediate response to economic growth shocks might be challenging, the long-term benefits of these policies become evident over time. Additionally, circularity received adverse shocks from green macro-prudential volatility during the period, while the reverse relationship was strongly positive. These results underscore the complex interplay between circularity policies and economic factorsThis highlights the need for stronger, well-designed policies that make green macroprudential measures robust enough to support long-term environmental and economic objectives.