International Journal of Economy, Energy and Environment
Volume 4, Issue 1, February 2019, Pages: 18-23
Received: Jan. 23, 2019;
Accepted: Mar. 12, 2019;
Published: Mar. 30, 2019
Views 318 Downloads 44
Chen Ling-Ling, School of Economics, Hefei University of Technology, Hefei, China
Wang Wen-Jun, School of Economics, Hefei University of Technology, Hefei, China
There are direct as well as indirect linkages between economic policy uncertainty and carbon market through the channels of market fundamentals. This paper theoretically analyzes the linkages between economic policy uncertainty and carbon price and empirically examines the impact of Chinese economic policy uncertainty on Hubei carbon prices. A two-regime Markov-Switching process is introduced into the VAR model to examine the impact of economic policy uncertainty during different regimes of the carbon market. The empirical results show that the two-regime Markov-Switching model applies well in modelling the return series from Hubei carbon market during April 2014 to December 2017. Under the two different regimes, although the impacts from economic policy uncertainty are both significantly positive, the magnitude of the impacts differs. The impact of Chinese economic policy uncertainty on Hubei carbon price is larger during the low volatility period on carbon market than that during the high volatility period on carbon market.
Impact of Economic Policy Uncertainty on Chinese Carbon Price, International Journal of Economy, Energy and Environment.
Vol. 4, No. 1,
2019, pp. 18-23.
Brogaard, J., Detzel, A., 2015. The asset-pricing implications of government economic policy uncertainty [J]. Manage. Sci. 61, 3–18.
Jones, P. M., Olson, E., 2013. The time-varying correlation between uncertainty, output, and inflation: evidence from a DCC-GARCH model [J]. Econ. Lett. 118,33-37.
Caggiano, G., Castelnuovo, E., Figueres, J., 2017. Economic policy uncertainty and unemployment in the United States: a nonlinear approach [J]. Monetary Econ. 67, 78–92.
Scheffel E M. Accounting for the political uncertainty factor [J]. Journal of Applied Econometrics, 2016, 31(6): 1048-1064.
Aastveit K A, Natvik G J, Sola S. Economic Uncertainty and the Effectiveness of Monetary Policy [J]. SSRN Electronic Journal, 2013, 89(5): 447-489.
Christou C, Gupta R, Hassapis C. Does economic policy uncertainty forecast real housing returns in a panel of OECD countries? A Bayesian approach [J]. The Quarterly Review of Economics and Finance, 2017, 65: 50-60.
Wang Y, Zhang B, Diao X, et al. Commodity price changes and the predictability of economic policy uncertainty [J]. Economics Letters, 2015, 127: 39-42.
Beckmann J, Czudaj R. Exchange rate expectations and economic policy uncertainty [J]. European Journal of Political Economy, 2017, 47: 148-162.
Zhang G, Han J, Pan Z, et al. Economic policy uncertainty and capital structure choice: Evidence from China [J]. Economic Systems, 2015, 39(3): 439-457.
Wang Y, Chen C R, Huang Y S. Economic policy uncertainty and corporate investment: Evidence from China [J]. Pacific-Basin Finance Journal, 2014, 26: 227-243.
Li X M, Zhang B, Gao R. Economic policy uncertainty shocks and stock–bond correlations: Evidence from the US market [J]. Economics Letters, 2015, 132: 91-96.
Li X M, Peng L. US economic policy uncertainty and co-movements between Chinese and US stock markets [J]. Economic Modelling, 2017, 61: 27-39.
Liu L, Zhang T. Economic policy uncertainty and stock market volatility [J]. Finance Research Letters, 2015, 15: 99-105.
Sun X, Yao X, Wang J. Dynamic interaction between economic policy uncertainty and financial stress: A multi-scale correlation framework [J]. Finance Research Letters, 2017, 21: 214-221.
Tsai I C. The source of global stock market risk: A viewpoint of economic policy uncertainty [J]. Economic Modelling, 2017, 60: 122-131.
Aatola P, Ollikainen M, Toppinen A. Price determination in the EU ETS market: Theory and econometric analysis with market fundamentals [J]. Energy Economics, 2013, 36: 380-395.
Germà Bel, Joseph S. Emission abatement: Untangling the impacts of the EU ETS and the economic crisis [J]. Irea Working Papers, 2015, 49: 531-539.
Christiansen A C, Arvanitakis A, Tangen K, et al. Price determinants in the EU emissions trading scheme [J]. Climate Policy, 2005, 5(1): 16.
Alberola E, Chevallier J, Beno?t Chèze. Emissions Compliances and Carbon Prices under the EU ETS: A Country Specific Analysis of Industrial Sectors [J]. Journal of Policy Modeling, 2009, 31(3): 446-462.
Jaehnab F. The emissions trading paradox [J]. European Journal of Operational Research, 2010, 202(1): 248-254.
Kautto N, Arasto A, Sijm J, et al. Interaction of the EU ETS and national climate policy instruments – Impact on biomass use [J]. Biomass & Bioenergy, 2012, 38(none): 117-127.
Benati L. Economic policy uncertainty and the great recession [J]. Journal of Applied Econometrics, 2013.
Jones A T, Sackley W H. An uncertain suggestion for gold-pricing models: the effect of economic policy uncertainty on gold prices [J]. Journal of Economics and Finance, 2016, 40(2): 367-379.
Galinato G I，Yoder J K. An integrated tax - subsidy policy for carbon emission [J]. Resource and Energy Economics, 2010, 32( 3): 310-326.
Arellano C., Bai Y., Kehoe P. Financial Markets and Fluctuations in Uncertainty [R]. Federal Reserve Bank of Minneapolis Working Paper, 2010.
Gilchrist S., Sim J. W., Zakrajsek E. Uncertainty, Financial Frictions, and Investment Dynamics [R]. Finance and Economics Discussion Series of Federal Reserve Board, 2014, No.2014-69.
Gulen, H. and Ion, M. Policy Uncertainty and Corporate Investment [J]. Review of Financial Studies, 2016, 29( 3), pp. 523-564.
Julio, B. and Yook, Y. Political Uncertainty and Corporate Investment Cycles [J]. The Journal of Finance, 2012, 67( 1), pp. 45-83.
Baker S. R., Bloom N., & Davis S. J., Measuring Economic Policy Uncertainty [J]. The Quarterly Journal of Economics, Vol.131, 1 November 2016, Pages 1593–1636.
Hamilton J. D., A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle [J]. Econometrica, Vol. 57, No. 2, Mar 1989, pp. 357-384.
Krolzig H. M., Markov-Switching Vector Autoregressions [M]. Berlin: Springer, 1997.
Redl C. Macroeconomic uncertainty in south africa [J]. South African Journal of Economics, 2018, 86(3): 361-380.
Li H., & An H., How Does the Coal Stock Market, Carbon Market and Coal Price Co-movement with Each other in China: A Co-movement Matrix Transmission Network Perspective [J]. Energy Procedia, Vol. 105, May 2017, Pages 3479-3484.
Zhang Y., Liu Z., & Yu X., The Diversification Benefits of Including Carbon Assets in Financial Portfolios [J]. Sustainability, Vol.9, March 2017, pages 437.