Climate policies under dynamic international economic cycles: a heterogeneous countries DSGE model


Xiao, Bowen ; Guo, Xiaodan ; Fan, Ying ; Voigt, Sebastian ; Cui, Lianbiao


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URL: https://madoc.bib.uni-mannheim.de/55084
URN: urn:nbn:de:bsz:180-madoc-550841
Document Type: Working paper
Year of publication: 2020
The title of a journal, publication series: ZEW Discussion Papers
Volume: 20-011
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: E32 , F41 , Q53 , Q56 , Q58,
Keywords (English): International economic cycle , carbon market , China , the European Union (EU) , Dynamic Stochastic General Equilibrium (DSGE)
Abstract: In light of increased economic integration and global warming, addressing critical issues such as the role of multilateral climate policies and the strategic interaction of countries in climate negotiations becomes paramount. We thus established for this paper an open economy environmental dynamic stochastic general equilibrium model with heterogeneous production sectors, bilateral climate policies, asymmetric economies, and asymmetric stochastic shocks, using China and the EU as case studies in order to analyze the interaction and linking of international carbon markets under dynamic international economic cycles. This led us to some major conclusions. First, with various methods we verified that, due to deadweight loss, the efficiency of the separate carbon market is lower than that of the joint carbon market. Second, the intensity of the spillover effects depends partly on different climate policies. This means that, in terms of supply-side shocks, the EU's economy in a joint carbon market is more sensitive because its cross-border spillover effects are enhanced, while demand-side shocks have a stronger impact on the EU's economy under a separate carbon market. Third, the Ramsey policy rule revealed that both China's and the EU's emission quotas should be adjusted pro-cyclically under separate carbon markets. The cross-border spillover effects of the joint carbon market, however can change the pro-cyclical characteristics of foreign (EU's) optimal quotas.

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Xiao, Bowen ; Guo, Xiaodan ; Fan, Ying ; Voigt, Sebastian ; Cui, Lianbiao (2020) Climate policies under dynamic international economic cycles: a heterogeneous countries DSGE model. Open Access ZEW Discussion Papers Mannheim 20-011 [Working paper]
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