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The impact of u.s. monetary policy on carbon emissions: evidence from a TVP-VAR model with stochastic volatility

Author

Listed:
  • Sanjay B Singh

    (Harrisburg University of Science and Technology)

Abstract

This study investigates the impact of U.S. monetary policy on carbon emissions using a Time-Varying Parameter Vector Autoregression (TVP-VAR) model with stochastic volatility, applied to quarterly data from 1973:Q1 to 2024:Q4. The findings indicate that a one percentage point increase in the interest rate leads to a reduction in emissions of 27.73 million metric tons (MMT) in 2001:Q1, 25.55 MMT in 2007:Q4, and 18.18 MMT in 2019:Q4, demonstrating a declining effect of monetary policy on emissions over time. These results highlight the evolving nature of monetary transmission and suggest that structural changes in the economy have weakened the environmental channel through which interest rate policy influences carbon outcomes. The study offers new insights for central banks seeking to align macroeconomic and climate goals.

Suggested Citation

  • Sanjay B Singh, 2025. "The impact of u.s. monetary policy on carbon emissions: evidence from a TVP-VAR model with stochastic volatility," Economics Bulletin, AccessEcon, vol. 45(1), pages 458-472.
    • Handle: RePEc:ebl:ecbull:eb-24-00317
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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