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Carbon and inflation

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  • Pardo, Ángel

Abstract

This paper investigates whether European Union Allowances (EUAs) can serve as an inflation hedge for two economic areas, four euro countries and two non-euro countries. The Extended Fisher Hypothesis is tested and the evidence shows a strong positive relationship between EUA returns and the unexpected inflation component in all the economic areas or countries analysed, except for the US. Therefore, EUAs are able to provide a hedge against unanticipated inflation rates.

Suggested Citation

  • Pardo, Ángel, 2021. "Carbon and inflation," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612320301616
    DOI: 10.1016/j.frl.2020.101519
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    References listed on IDEAS

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    1. Emilie Alberola & Julien Chevallier, 2009. "European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 51-80.
    2. Koch, Nicolas & Fuss, Sabine & Grosjean, Godefroy & Edenhofer, Ottmar, 2014. "Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?—New evidence," Energy Policy, Elsevier, vol. 73(C), pages 676-685.
    3. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
    4. Vicente Medina & Angel Pardo, 2013. "Is the EUA a new asset class?," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 637-653, March.
    5. Arnold, Stephan & Auer, Benjamin R., 2015. "What do scientists know about inflation hedging?," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 187-214.
    6. Federico Galán-Valdivieso & Elena Villar-Rubio & María-Dolores Huete-Morales, 2018. "The erratic behaviour of the EU ETS on the path towards consolidation and price stability," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 18(5), pages 689-706, October.
    7. Salisu, Afees A. & Adediran, Idris A. & Oloko, Tirimisiyu O. & Ohemeng, William, 2020. "The heterogeneous behaviour of the inflation hedging property of cocoa," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    8. Gultekin, N Bulent, 1983. "Stock Market Returns and Inflation: Evidence from Other Countries," Journal of Finance, American Finance Association, vol. 38(1), pages 49-65, March.
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    Cited by:

    1. Palao, Fernando & Pardo, Ángel, 2021. "The inconvenience yield of carbon futures," Energy Economics, Elsevier, vol. 101(C).
    2. repec:crb:wpaper:2023-01 is not listed on IDEAS
    3. Zheng, Yan & Wen, Fenghua & Deng, Hanshi & Zeng, Aiqing, 2022. "The relationship between carbon market attention and the EU CET market: Evidence from different market conditions," Finance Research Letters, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    EUAs; HICP; Inflation hedge;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G19 - Financial Economics - - General Financial Markets - - - Other

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