Working Paper: NBER ID: w29032
Authors: Barbara Annicchiarico; Stefano Carattini; Carolyn Fischer; Garth Heutel
Abstract: We study the relationship between business cycles and the design and effects of environmental policies, particularly those with economy-wide significance like climate policies. First, we provide a brief review of the literature related to this topic, from initial explorations using real business cycle models to New Keynesian extensions, open-economy variations, and issues of monetary policy and financial regulations. Next, we provide a list of the main findings that emerge from this literature that are potentially most relevant to policymakers, including the impacts of policy on volatility and how to design policy to adjust to cycles. Finally, we propose several important remaining research questions.
Keywords: Business cycles; Environmental policy; Climate policy; Economic volatility
JEL Codes: E32; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Environmental policies (Q58) | Economic volatility (E32) |
| Cap-and-trade (Q58) | Economic volatility (E32) |
| Carbon tax (H23) | Economic volatility (E32) |
| Dynamically efficient policies (H21) | Welfare (I38) |
| Economic expansions (E32) | Dynamically efficient policies (H21) |
| Recessions (E32) | Dynamically efficient policies (H21) |
| Source of business cycle fluctuations (E32) | Emissions and economic welfare (D69) |
| Interaction of environmental policy with monetary policy (E63) | Efficient cyclicality of environmental policy (Q58) |