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Is the business cycle getting hit by climate policy uncertainty in China?

Author

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  • Chen, Juan
  • Xiao, Zuoping

Abstract

This study apply an asymmetric time-varying test to assess the impact of China's climate policy uncertainty (CCPU) on its business cycle (2000–2022) using currency supply indices (M2, M1, and M0) as economic proxies. Linear Granger tests indicate no causal relationship between CCPU and the currency supply in general. However, the time-varying analysis reveals a significant impact of CCPU on M2 after December 2020. In addition, M2 mainly responds to negative CCPU shocks whereas M1 and M0 respond to both positive and negative shocks. Therefore, policymakers should adopt stabilisation measures to mitigate M2 contraction during CCPU surges while monitoring M1 and M0 for comprehensive currency policy adjustments.

Suggested Citation

  • Chen, Juan & Xiao, Zuoping, 2025. "Is the business cycle getting hit by climate policy uncertainty in China?," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s1544612324013734
    DOI: 10.1016/j.frl.2024.106344
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    More about this item

    Keywords

    Climate policy uncertainty; Business cycle; Asymmetry; Granger causality; Time-varying;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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