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Evidence on CO2 emissions and business cycles

  • Baran Doda
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    CO2 emissions and GDP are positively correlated over the business cycle. Most climate change researchers would agree with the preceding intuitive statement despite the absence of a study that formally analyzes the relationship between emissions and GDP at business cyclefrequencies. The current paper attempts to address this gap in the literature by providing a simple, rigorous and consistent analysis of the relationship in a comprehensive cross country panel. To this end, I decompose the aggregate emissions and GDP series into their growth and cyclical components using the HP filter and focus on the cyclical components. Four robustfacts emerge from this analysis: i) Emissions are procyclical and cyclically more volatile than GDP in a typical country; ii) Cyclical volatility of emissions is negatively correlated with GDP per capita across countries; iii) Procyclicality of emissions is positively correlated with GDP per capita across countries; and iv) The composition of GDP is crucial for the business cycle properties of emissions but the relationship is complex. I undertake and report an extensive set of robustness checks which corroborate these findings. Finally, I propose some preliminarythoughts on the mechanisms that may be generating the data with these properties.

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    File URL: http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2014/02/WP78-Evidence-CO2-emissions-business-cycles-Doda.pdf
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    Paper provided by Grantham Research Institute on Climate Change and the Environment in its series GRI Working Papers with number 78.

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    Date of creation: Apr 2012
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    Handle: RePEc:lsg:lsgwps:wp78
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    1. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 243-287, 02.
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    5. Jose Maria Da Rocha & Diego Restuccia, 2006. "The Role of Agriculture in Aggregate Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 455-482, July.
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    7. Vasco Carvalho & X. Gabaix, 2010. "The Great Diversification?," Working Papers 422, Barcelona Graduate School of Economics.
    8. Canova, Fabio, 1993. "Detrending and Business Cycle Facts," CEPR Discussion Papers 782, C.E.P.R. Discussion Papers.
    9. Radoslaw Stefanski, 2010. "Structural Transformation and the Oil Price," OxCarre Working Papers 048, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    10. Richard Schmalensee & Thomas M. Stoker & Ruth A. Judson, 1998. "World Carbon Dioxide Emissions: 1950-2050," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 15-27, February.
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    12. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
    13. A. Bródy†, 2011. "Growth or development?," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 61(2), pages 131-142, June.
    14. Burnside, Craig, 1998. "Detrending and business cycle facts: A comment," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 513-532, May.
    15. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    16. Radoslaw Stefanski, 2013. "Online Appendix to "Structural Transformation and the Oil Price"," Technical Appendices 12-45, Review of Economic Dynamics.
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