The Unassuming Economist

There are conflicting claims about whether emissions growth and GDP growth have decoupled. My presentation today shows that some of this debate is due to a failure to distinguish cycles from trends: there is an Environmental Okun’s Law (a cyclical relationship between emissions and GDP) which often obscures the Environmental Kuznets Curve (the trend relationship between emissions and GDP).

My ongoing work casts relationships between emissions and economic growth in much simpler terms than is typically done in the climate change literature. My co-authors and I use the trend and cycle decomposition that is familiar to most economists, particularly macroeconomists. We then show that the cyclical relationship between emissions and real GDP—akin to an Okun’s Law, in the terminology of macroeconomists—obscures the trend relationship—the Kuznets Curve that is the focus of many papers in the climate change literature. Once the cyclical relationship is stripped away, the trends do show some evidence of decoupling in the richer nations, particularly in Europe.

We then apply the framework to take into account the effects of international trade. That is, we distinguish between production-based and consumption-based emissions. This makes a big difference to the results. Specifically, the evidence for decoupling among the top emitting countries gets much weaker, including for many countries in Europe.

Like Jim Hamilton, I like the visual device suggested by my friend and former colleague Charlie Evans (a.k.a. President Evans of the Chicago Fed) of using a bull’s eye to show where the economy is relative to the Fed’s likely targets. Jim’s latest update shows the U.S. economy moving back towards the bull’s eye.

A nice paper by Philip Cross on what the different measures of GDP tell us. HT: Dave Giles’ Blog.

Jim Hamilton offers a characteristically clear summary of a Bank of England paper on the factors affecting global saving and investment and hence global real interest rates. It is a good example of how economists use supply and demand to analyze current developments.

http://econbrowser.com/archives/2016/12/factors-in-low-real-interest-rates