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International Transmission of the Business Cycle and Environmental Policy

Barbara Annicchiarico () and Francesca Diluiso ()
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Francesca Diluiso: DEF, University of Rome "Tor Vergata", http://www.ceistorvergata.it

No 423, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper presents a baseline dynamic general-equilibrium model of environmental policy for a two-country economy and studies the international transmission of several asymmetric shocks considering three different economy-wide greenhouse gases (GHG) emission regulations: (i) national cap-and-trade, (ii) carbon tax, and (iii) international cap-and-trade system allowing for cross-border allocation of emission permits. We find that international spillovers of shocks originated in one country are strongly influenced by the environmental regime put in place. We show that, while a national cap-and-trade system diminishes the international spillovers by dampening the response of the country hit by shocks, the cross-border reaction to supply-side shocks is found to be magnified under an international cap-and-trade system, while demand shocks are more intensively transmitted under a carbon tax. The pattern of trade and the underlying monetary regime in uence the cross-border 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: F41 F42 E32 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-mac and nep-res
Date: 2017-12-19, Revised 2017-12-19
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Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:423

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