Is the business cycle getting hit by climate policy uncertainty in China?

Juan Chen and Zuoping Xiao

Finance Research Letters, 2025, vol. 71, issue C

Abstract: This study apply an asymmetric time-varying test to assess the impact of China's climate policy uncertainty (CCPU) on its business cycle (2000–2022) using currency supply indices (M2, M1, and M0) as economic proxies. Linear Granger tests indicate no causal relationship between CCPU and the currency supply in general. However, the time-varying analysis reveals a significant impact of CCPU on M2 after December 2020. In addition, M2 mainly responds to negative CCPU shocks whereas M1 and M0 respond to both positive and negative shocks. Therefore, policymakers should adopt stabilisation measures to mitigate M2 contraction during CCPU surges while monitoring M1 and M0 for comprehensive currency policy adjustments.

Keywords: Climate policy uncertainty; Business cycle; Asymmetry; Granger causality; Time-varying (search for similar items in EconPapers)
JEL-codes: C22 C58 G11 G17 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324013734

DOI: 10.1016/j.frl.2024.106344

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