Assessing the influence of fiscal and monetary policies on carbon dioxide emissions

•Expansionary and contractionary fiscal policy affects CO2 emissions in the short and long run. This implies that fiscal policy is not oriented toward reducing CO2 emissions and some policy actions risk impacting domestic economic activity.•Expansionary and contractionary monetary policy also impact...

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Bibliographic Details
Published in:Latin American journal of central banking 2024-09, Vol.5 (3), p.100114, Article 100114
Main Authors: Ramlogan, Avinash, Nelson, Andell
Format: Article
Language:English
Subjects:
Carbon dioxide emissions
Cointegration
E21
E43
E63
Energy consumption
Fiscal policy
Monetary policy
NARDL methodology
Q53
Q54
Q56
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Summary:•Expansionary and contractionary fiscal policy affects CO2 emissions in the short and long run. This implies that fiscal policy is not oriented toward reducing CO2 emissions and some policy actions risk impacting domestic economic activity.•Expansionary and contractionary monetary policy also impacts CO2 emissions in the short and long run. However, based on our models, the measurement of the monetary policy stance and conditions can shed light on its impact on emissions, and is an area for deeper analysis. The finding contributes to the literature on the potential effects of monetary policy on emissions.•The impact of fossil fuel energy consumption, carbon intensity and import capacity on CO2 emissions are positive and statistically significant. A key finding is that their impact on CO2 emissions is greater in the long run than in the short run. This paper examines the impact of fiscal and monetary policies on carbon dioxide emissions in Trinidad and Tobago, using data from 1970 to 2020. We use a fiscal policy index based on government revenue and expenditure, a monetary policy index based on interest rates and reserve requirement data, and a Non-linear Autoregressive Distributed Lag technique. Our results show that expansionary fiscal policy raises emissions, while contractionary fiscal policy reduces emissions. Intriguingly, expansionary monetary policy increases emissions, while contractionary monetary policy lowers them. These findings hold significance for fiscal and monetary policymakers working on climate change mitigation strategies.
ISSN:2666-1438
2666-1438
DOI:10.1016/j.latcb.2023.100114