Carbon emissions and business cycles
Name
KKMP_JMacro_Final.pdf
Description
Accepted version
Size
520.02 KB
Format
Adobe PDF
Checksum (MD5)
427b37320d3db3df69ee525ab4862cba
Author(s)
Khan, Hashmat
Metaxoglou, Konstantinos
Knittel, Christopher Roland
Papineau, Maya
Date Issued
June 2019
Journal
Journal of Macroeconomics
Publisher
Elsevier BV
Citation
Khan, Hashmat et al. "Carbon emissions and business cycles." Journal of Macroeconomics 60 (June 2019): 1-19 © 2019 Elsevier Inc
Version
Author's final manuscript
Abstract
Carbon emissions and real GDP are strongly correlated over the U.S. business cycle. This relationship suggests that macroeconomic shocks inducing cyclical fluctuations in output should also account for the cyclical behavior of emissions and motivates our analysis. We begin by expanding the set of technology shocks in a popular emissions-augmented dynamic stochastic general equilibrium model from the literature, and show that the model generates positive emissions-GDP comovements to each shock through distinct channels. We then estimate the emissions’ response to empirically identified technology shocks using structural vector autoregressions (SVARs). Using the SVARs, we also rank the shocks in terms of explaining the emissions’ forecast error variation. While emissions tend to rise gradually after most shocks, consistent with their theoretical counterparts, the impulse responses are not statistically significant. Unanticipated technology shocks account for less than 10 percent of the variation in emissions. By contrast, anticipated investment technology shocks account for 25 percent of the variation. Government spending and monetary policy shocks account for less than 1 percent. Importantly, close to two thirds of the variation in emissions appears to be due to a structural shock not yet identified in the literature.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/j.jmacro.2019.01.005
