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International transmission of the business cycle and environmental policy

Barbara Annicchiarico () and Francesca Diluiso

Resource and Energy Economics, 2019, vol. 58, issue C

Abstract: This paper presents a dynamic stochastic general equilibrium (DSGE) model of environmental policy for a two-country economy and studies the international transmission of asymmetric shocks considering two different economy-wide greenhouse gases (GHG) emission regulations: a carbon tax and a cap-and-trade system allowing for cross-border exchange of emission permits. We find that international spillovers of shocks are strongly influenced by the environmental regime put in place. The cross-border reaction to shocks is found to be magnified under a carbon tax. The pattern of trade and the underlying monetary regime influence the international transmission channels interacting with the environmental policy adopted.

Keywords: Open economy macroeconomics; GHG emission control; Macroeconomic dynamics (search for similar items in EconPapers)
JEL-codes: E32 F41 F42 Q58 (search for similar items in EconPapers)
Date: 2019
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Working Paper: International Transmission of the Business Cycle and Environmental Policy (2017) Downloads
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DOI: 10.1016/j.reseneeco.2019.07.006

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