Essays on Impact of Economic Policy on Climate Change: Evidence from the United States

This dissertation is about the impacts of economic policy on climate change in the United States economy. This document is divided into three main chapters, allowing for a separate discussion of each category. The first chapter studies the impacts of monetary policy on climate change in the United States in the presence of macro variables such as employment and inflation. Using TVP-VAR with or without stochastic to estimate the impulse response of carbon emissions to a one percentage point (pp) increase in the federal funds rates during the expansion and recession period from Q1 1973 to Q1 2022. Estimated results show that a one pp increase in interest rate lowered emissions by 18.7 million metric tons of carbon emissions during one year, equivalent to 1.04% during one year in expansion periods. Furthermore, positive monetary policy shocks also suggest that volatility plays an almost negligible role while estimating. The second chapter studies the impact of monetary policy uncertainty on stock returns of renewable energy ETFs (Exchange-traded funds). Using a Bayesian structural vector autoregression (Bayesian SVAR) model on monthly data of monetary policy uncertainty index and stock returns of renewable energy ETFs from August 2008 to October 2021. This paper finds that positive shocks in monetary policy uncertainty decrease the stock returns of renewable energy in the US. Furthermore, the impacts of monetary policy uncertainty shock negatively affect industrial production and inflation hinting that high unemployment through tight monetary policy causes low economic activity. The third chapter is about the impacts of climate policy uncertainty on renewable energy consumption at aggregate and sectoral levels. For estimation, I use the Bayesian vector autoregression (Bayesian VAR) model on monthly data of renewable energy consumption at aggregate and sectoral levels, real BBK-GDP and stock price of renewable energy ETF (ECO) from December 2000 to October 2022. Estimated results show that positive climate policy uncertainty shocks increase renewable energy consumption growth at an aggregate level. However, climate policy uncertainty has asymmetric effects at the sectoral level as they depend on whether sectors are substitutable between fossil fuel and renewable energy.