Carbon Emissions and Business Cycles / Hashmat Khan, Christopher R. Knittel, Konstantinos Metaxoglou, Maya Papineau.

Format:

Book

Author/Creator:

Khan, Hashmat.

Contributor:

National Bureau of Economic Research.

Knittel, Christopher R.

Metaxoglou, Konstantinos.

Papineau, Maya.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22294.

NBER working paper series no. w22294

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

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.

Notes:

Print version record

May 2016.