Carbon Emissions and Business Cycles

Hashmat Khan (), Christopher Knittel, Konstantinos Metaxoglou and Maya Papineau

No 22294, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: U.S. carbon dioxide emissions are highly procyclical—they increase during expansions and fall during recessions. Given this empirical fact, we estimate the response of emissions to four prominent technology shocks from the business-cycle literature using structural vector autoregressive methodologies and data for 1973–2012. By studying the response of emissions to these shocks, we provide a novel approach to assess the shocks’ relevance as sources of aggregate output fluctuations. We find that emissions rise on impact only after an anticipated investment-specific technology shock; the response is statistically significant after the first quarter. The same shock explains most— roughly a third—of the total variation in emissions at a horizon of 5 years. Notably, emissions decrease on impact after an unanticipated neutral technology shock in a statistically significant way. This negative empirical response has the opposite sign from its theoretical counterpart in recent environmental DSGE (E-DSGE) models. Since the positive response of emissions drives the E-DSGE models’ recommendation for an optimal procyclical policy, our findings suggest that such a policy recommendation should be treated cautiously.

JEL-codes: E32 Q43 Q48 Q54 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-dge, nep-env and nep-mac
Note: EEE EFG PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Hashmat Khan & Konstantinos Metaxoglou & Christopher R. Knittel & Maya Papineau, 2019. "Carbon emissions and business cycles," Journal of Macroeconomics, vol 60, pages 1-19.

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Journal Article: Carbon emissions and business cycles (2019)
Working Paper: Carbon Emissions and Business Cycles (2019)
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