Green Business Cycles

Känzig, Diego, Maximilian Konradt, Lixing Wang and Donghai Zhang

No 20475, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper examines the relationship between green innovation and the business cycle, revealing that while non-green innovation is procyclical, green innovation is countercyclical. This pattern holds unconditionally over the business cycle and conditional on economic shocks. Motivated by these findings, we develop a business cycle model with endogenous green and non-green innovation to explain their distinct cyclical behavior. The key mechanism operates through a ‘green is in the future’ channel: green patents are expected to generate higher profits in the future, making green patenting less sensitive to short-term economic fluctuations. In general equilibrium, this channel is reinforced, making green and non-green innovation effective substitutes. We provide direct evidence supporting the model mechanism using data on market-implied values of green and non-green patents.

Keywords: Green; innovation (search for similar items in EconPapers)
JEL-codes: E32 O31 Q55 Q58 (search for similar items in EconPapers)
Date: 2025-07
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