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Climate policy uncertainty and the U.S. economic cycle

Author

Listed:
  • Yang, Jinyu
  • Dong, Dayong
  • Liang, Chao

Abstract

Given the concerns arising from climate change, countries, regions, and organizations worldwide have developed and implemented policy frameworks and measures aimed at addressing the challenges posed by climate change. However, the implementation pathways of these policies may entail significant uncertainties, presenting challenges to economic development. This study uses the vector autoregressive (VAR) model to examine the influence of climate policy uncertainty (CPU) on the U.S. economic cycle. The economic cycle variables are extracted from four popular economic indicators based on the Hodrick-Prescott (HP) filter. The results show that CPU changes effectively impact economic cycle, and a positive CPU shock can trigger negative reactions in the economy (recession) in the subsequent period. Moreover, we find that CPU changes are a Granger cause of the economic cycle and have good prediction classification performance for economic expansions and recessions. We provide new insights into the relationship between CPU and the economic cycle for policymakers.

Suggested Citation

  • Yang, Jinyu & Dong, Dayong & Liang, Chao, 2024. "Climate policy uncertainty and the U.S. economic cycle," Technological Forecasting and Social Change, Elsevier, vol. 202(C).
    • Handle: RePEc:eee:tefoso:v:202:y:2024:i:c:s0040162524001409
    DOI: 10.1016/j.techfore.2024.123344
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    More about this item

    Keywords

    Climate policy uncertainty; Economic cycle; Hodrick-Prescott (HP) filter; VAR model;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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