Do green bonds and economic policy uncertainty matter for carbon price? New insights from a TVP-VAR framework

Green bond shocks and economic policy uncertainty are essential factors affecting macroeconomic development and green finance. In this paper, the time-varying parameter vector autoregressive (TVP-VAR) framework is used to analyze the monthly data of China from April 2014 to March 2022 and to investigate the dynamic impact of green bond shock and economic policy uncertainty on carbon prices. The results show that economic policy uncertainty and the impact of the green bond have significant time-varying and short-term effects on carbon price. In the short term, economic policy uncertainty has a significant positive impact on carbon price most of the time, while green bond has a significant negative impact on carbon price most of the time. Meanwhile, economic policy uncertainty and the impact of green bond on carbon price in Hubei and Guangdong are heterogeneous. In addition, we also use Bayesian VAR (BVAR) model to test the robustness of the results. Based on the research results, some policy suggestions are put forward, including improving the stability of economic policies, implementing green bond support policies, and speeding up the improvement of the national unified carbon emission trading market.

Automated summary

Green bond shocks and economic policy uncertainty are crucial factors influencing macroeconomic development and green finance. This paper uses the TVP-VAR framework to analyze monthly data from China to investigate the dynamic impact of green bond shocks and economic policy uncertainty on carbon prices. The results reveal that economic policy uncertainty and green bond shocks have significant time-varying and short-term effects on carbon prices. Additionally, there is heterogeneity in the impact of economic policy uncertainty and green bond shocks on carbon prices in Hubei and Guangdong. The robustness of the results is tested using the Bayesian VAR model. Based on the findings, policy suggestions are proposed, including improving the stability of economic policies, implementing green bond support policies, and expediting the development of a national unified carbon emission trading market.