The dynamic spillover effects of climate policy uncertainty and coal price on carbon price: Evidence from China

• Published in: Finance research letters Vol. 53; p. 103400
• Main Authors: Yan, Wan-Lin, Cheung, Adrian (Wai Kong)
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.05.2023
• Subjects: Carbon price; Climate policy uncertainty; Coal price; Dynamic spillover effect; The time-varying parameters vector autoregression model; Carbon price; Q54; Coal price; C32; Q58; Dynamic spillover effect; The time-varying parameters vector autoregression model; G15; Climate policy uncertainty; G18
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2022.103400

•A daily climate policy uncertainty index was constructed for China.•Analyze the effects of climate policy uncertainty and coal price on carbon price.•Coal price is the main shock transmitter.•Climate policy uncertainty and carbon price are mostly net shock receivers. This paper applies the time-varying parameters vector autoregression (TVP-VAR) model to investigate the dynamic effects of climate policy uncertainty and coal price on carbon price in China. Based on news from China's mainstream newspapers and websites, a tailor-made climate policy uncertainty index is constructed. The VAR-BEKK-GARCH model is utilized as robustness check. The results indicate that both the climate policy uncertainty and coal price have significant time-varying effects on the carbon price. Additional dynamic connectedness analysis reveals that coal price is the main shock transmitter while climate policy uncertainty and carbon price are mostly net shock receivers.