Does monetary policy impact CO2 emissions? A GVAR analysis

Luccas Assis Attílio, João Ricardo Faria and Mauro Rodrigues

Energy Economics, 2023, vol. 119, issue C

Abstract: This paper studies the relationship between monetary policy and CO2 emissions. Our contribution is twofold: (i) we present a stylized dynamic AD-AS model with Global Value Chains (GVC) and carbon emissions to illustrate this relationship, (ii) we estimate the effect of monetary policy on emissions using the GVAR methodology, which explicitly considers the interconnection between regions instead of treating them as isolated economies. We focus on CO2 emissions in four regions: U.S., U.K., Japan and the Eurozone, but we use data from 8 other countries to characterize the international economy. Our results show that a monetary contraction in a country is associated with lower domestic emissions both in the short- and the long-run. Although we do not find evidence of cross-region effects concerning monetary policy, variance decomposition suggests that external factors are relevant to understanding each region's fluctuations in emissions.

Keywords: Pollution; Monetary policy; International linkages (search for similar items in EconPapers)
JEL-codes: E43 E52 Q50 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Does monetary policy impact CO2 Emissions? A GVAR analysis (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:119:y:2023:i:c:s0140988323000579

DOI: 10.1016/j.eneco.2023.106559

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