Abstract
Recent research suggests that policies implementing structural change are required to alter the paths of carbon dioxide emissions in many nations. This note provides additional support for this view, allowing for smooth shifts in the deterministic part of the stochastic process. A Fourier wavelet unit root test indicates that in many countries, a temporary shock to emissions will have a permanent impact, whereas tests that examine fractional integration around a smooth break with de-trending indicate that a shock to emissions will have a transitory impact. Policies that induce structural changes are required to place emissions on a downward path.
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Notes
We thank an anonymous referee for suggesting we include a summary of the current literature: it is relegated to the Supplementary Appendix for brevity.
See Erdogan and Solarin (2021).
Here both the AIC and BIC are employed, with the maximum lag set following a revised version of Schwert (1989) given that the test is performed on the low-frequency component of the series which is half the length of the original variable (T). Hence the maximum lag was set as floor (12 ((T//2)/100)0.25).
In the case of the t test on the Fourier term this is two tailed test that could be positive or negative with similar quantiles on either side of the distribution.
For instance, Pata and Aydin (2022) examine G7 nations on a longer time span and find that CO2 emissions polices will have permanent effects in all nations. They also employ asymptotic critical values in their analysis which may also explain the differences. For brevity Table 1 only contains the bootstrapped probability values, extended information appears in the Supplementary Appendix.
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Sephton, P., Omay, T. A note on CO2 emissions using two new tests. Empirica 50, 933–941 (2023). https://doi.org/10.1007/s10663-023-09584-x
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DOI: https://doi.org/10.1007/s10663-023-09584-x