Effects of Fiscal and Monetary Policies, Energy Consumption and Economic Growth on CO2 Emissions in the Turkish Economy: Nonlinear Bootstrapping NARDL and Nonlinear Causality Methods

Abstract

Governments use fiscal and monetary policies to direct the economy toward economic expansion. However, both policies could have impacts on the environment. The study investigates the effects of fiscal and monetary policy, energy consumption and economic growth on carbon dioxide emissions for the Turkish economy from 1978 to 2021 with novel nonlinear bootstrapping NBARDL and nonlinear NBVARDL for nonlinear causality testing. The methods are robust to degenerate cointegration. By differentiating between expansionary and contractionary fiscal and monetary policies, the results determined the presence of long-run cointegrated relationships between the analyzed variables and emissions. The positive effects of both economic policies on emissions cannot be rejected, which become particularly pronounced for expansionary policies in addition to emission enhancing effects of energy consumption and growth. The effects of contractionary monetary policy are also positive in contrast to a set from the literature. Nonlinear causality tests favor one-way causality from energy consumption and from growth to emissions. The one-way causality from energy consumption and economic growth to emissions suggest non-existent feedback effects, leading to concerns for the environment. Expansionary and recessionary fiscal policies have one-way causal impacts on energy, leading to further environmental degradation. The findings highlight the severity of environmental problems caused by economic policies. Important policy recommendations are generated.

Unraveling Korea’s Energy Challenge: The Consequences of Carbon Dioxide Emissions and Energy Use on Economic Sustainability

“…Lastly, the study's identification of bidirectional Granger causality between carbon dioxide emissions and economic growth, as well as between energy consumption and economic growth, marks a notable advancement. This complex causality, differing from the unidirectional causality in Li et al's [18] and Bildirici et al's [19] research, underlines the complexity of environmental and economic interplay and underscores the need for sustainable policy approaches. Overall, this study enriches the understanding of the dynamic relationship between environmental and economic variables in Korea, offering valuable policy insights for achieving a harmonious balance between economic growth and environmental sustainability.…”

Effects of Technology, Energy, Monetary, and Fiscal Policies on the Relationship between Renewable and Fossil Fuel Energies and Environmental Pollution: Novel NBARDL and Causality Analyses

“…Fossil fuel-based energy consumption and the factors leading to the increase in primary energy are the subject of many studies. In thisliterature, the effects of policy implementations are under special consideration; for a relevant review, we refer the readers to [6]. Many studies discuss the effects of the fiscal policy (FP) and monetary policy (MP) in detail, including the fluctuations in interest rates, applications of tax policies, and how they affect energy consumption and environmental pollution levels in addition to other effects.…”

“…Many studies discuss the effects of the fiscal policy (FP) and monetary policy (MP) in detail, including the fluctuations in interest rates, applications of tax policies, and how they affect energy consumption and environmental pollution levels in addition to other effects. The literature scrutinizes how the expansionary economic policies that favor economic growth have important effects on accelerating the emissions of CO 2 , considered among the main GHGs [6]. Such positive effects also exist for contractionary policies.…”

“…In contrast, NBARDL and the Granger causality modeling extension of NBARDL are novel methods that integrate bootstrapping and nonlinearity simultaneously into cointegration and causality relations. The method is advocated by [6] as a hybridization of bootstrapping BARDL and nonlinear NARDL methods and achieve robust results for nonlinearity and degenerate cases simultaneously in an ARDL-type cointegration and nonlinear causality. In this study, the NBARDL and NBARDL models in vector form are utilized to examine the asymmetric effects of the FP and MP by distinguishing between expansionary and contractionary characteristics in addition to examining the effects of renewable energy and total energy and technology on environmental pollution.…”

“…Furthermore, the paper is a seminal paper in this respect and, as seen in the Literature Review Section, there are few papers that study the asymmetric effects of FP and MP instruments on the environment by using NARDL, and no paper utilizes the NBARDL and its nonlinear Granger causality extension to investigate the asymmetric effects of the MP and FP in addition to examining the effects of technology, energy, and renewable energy simultaneously on environmental degradation. This study is unique in that two types of causality analyses are used to obtain comparative and robust results, i.e., traditional causality methods based on linear causal analyses in addition to a novel nonlinear causality method by [6]. The inclusion of the new method and the comparison of the results to the traditional linear method is crucial to derive adequate policy recommendations.…”