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The response of CO2 emissions to the business cycle: New evidence for the U.S

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  • Torben Klarl

Abstract

This paper investigates the response of CO2 emissions to the business cycle for the U.S. on a monthly basis between 1973-2015. Using a rolling-regression approach, we find that the emissions elasticity with respect to GDP is not constant over time, irrespective which filtering method, such as the Hodrick-Prescott, the Baxter-King, the Christiano-Fitzgerald or the Butterworth filter has been employed. In order to check whether or not emissions react differently during normal and recession times, next, we employ a Markov-switching approach. We find, first, that emissions are significantly more elastic during recessions, than in normal times. Second, depending on the filtering method, we also obtain parameter estimates of the emissions elasticity above one in recession times and below one in normal times. Thus, environmental policy instruments not turning out to be sub-optimal should account for this asymmetric response of emissions due to changes in GDP.

Suggested Citation

  • Torben Klarl, 2019. "The response of CO2 emissions to the business cycle: New evidence for the U.S," Bremen Papers on Economics & Innovation 1902, University of Bremen, Faculty of Business Studies and Economics.
    • Handle: RePEc:atv:wpaper:1902
    DOI: https://doi.org/10.26092/elib/207
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    More about this item

    Keywords

    Business cycle; CO2 emissions; Rolling-regression; Markov-switching;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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