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Exchange rate effect on carbon credit price via energy markets

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  • Yu, Jongmin
  • Mallory, Mindy L.

Abstract

This paper examines the impact of currency exchange rates on the carbon market. We scrutinize this effect through the European Union Emission Trading Scheme (EU-ETS), which primarily uses two substitutable fossil energy inputs for the generation of electricity: coal and natural gas. The European coal market is directly driven by global coal markets that are denominated in USD, whereas, natural gas is mainly imported from Russia and is denominated in Euros. The impulse response functions of a Structural Vector Autoregression (SVAR) model demonstrate that a shock in the Euro/USD exchange rate can be transmitted through the channel of energy substitution between coal and natural gas, and influence on the carbon credit market.

Suggested Citation

  • Yu, Jongmin & Mallory, Mindy L., 2014. "Exchange rate effect on carbon credit price via energy markets," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 145-161.
  • Handle: RePEc:eee:jimfin:v:47:y:2014:i:c:p:145-161
    DOI: 10.1016/j.jimonfin.2014.04.010
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    Citations

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    Cited by:

    1. Hyunju Kang & Bok-Keun Yu & Jongmin Yu, 2016. "Global Liquidity and Commodity Prices," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 20-36, February.
    2. repec:eco:journ2:2017-02-33 is not listed on IDEAS
    3. repec:eee:eneeco:v:64:y:2017:i:c:p:170-176 is not listed on IDEAS
    4. repec:eee:enepol:v:106:y:2017:i:c:p:111-121 is not listed on IDEAS
    5. Tan, Xue-Ping & Wang, Xin-Yu, 2017. "Dependence changes between the carbon price and its fundamentals: A quantile regression approach," Applied Energy, Elsevier, vol. 190(C), pages 306-325.

    More about this item

    Keywords

    Foreign exchange rate; Carbon market; Fuel-switching; Structural VAR;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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