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Does monetary policy impact CO2 Emissions? A GVAR analysis

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  • Luccas Assis Attilio
  • Joao Ricardo Faria
  • Mauro Rodrigues

Abstract

This paper studies the relationship between monetary policy and CO2 emissions. Our contribution is twofold: (i) we present a stylized dynamic AD-AS model with Global Value Chains (GVC) and carbon emissions to illustrate this relationship, (ii) we estimate the effect of monetary policy on emissions using the GVAR methodology, which explicitly considers the interconnection between regions instead of treating them as isolated economies. We focus on CO2 emissions in four regions: U.S., U.K., Japan and the Eurozone, but we use data from 8 other countries to characterize the international economy. Our results show that a monetary contraction in a country is associated with lower domestic emissions both in the short- and the long-run. Although we do not find evidence of cross-region effects concerning monetary policy, variance decomposition suggests that external factors are relevant to understanding each region's fluctuations in emissions.

Suggested Citation

  • Luccas Assis Attilio & Joao Ricardo Faria & Mauro Rodrigues, 2022. "Does monetary policy impact CO2 Emissions? A GVAR analysis," Working Papers, Department of Economics 2022_24, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2022wpecon24
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    Cited by:

    1. Wang Jie & Rabnawaz Khan, 2024. "Breaking the CO 2 Gridlock: Can Renewables Lead the Way for the OECD?," Energies, MDPI, vol. 17(17), pages 1-29, September.
    2. Wang, Jiqiang & Dai, Peng-Fei & Zhang, Xuewen, 2024. "Untangling the entanglement of US monetary policy uncertainty and European natural gas and carbon prices," Energy Economics, Elsevier, vol. 133(C).
    3. Chan, Ying Tung & Punzi, Maria Teresa & Zhao, Hong, 2024. "Green transition and financial stability: The role of green monetary and macroprudential policies and vouchers," Energy Economics, Elsevier, vol. 132(C).
    4. Yang, Jinyu & Dong, Dayong & Liang, Chao & Cao, Yang, 2024. "Monetary policy uncertainty and the price bubbles in energy markets," Energy Economics, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    Pollution; monetary policy; international linkages;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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