Evidence on business cycles and CO2CO2 emissions

• I propose facts about the emissions-GDP relationship over the business cycle.
• Emissions are procyclical and more volatile than GDP in a comprehensive panel.
• Volatility of emissions declines with GDP per capita.
• Procyclicality of emissions increases with GDP per capita.
• The findings have significant implications for model calibration and policy.

CO2CO2 emissions and GDP move together over the business cycle. Most climate change researchers would agree with this statement despite the absence of a study that formally analyzes the relationship between emissions and GDP at business cycle frequencies. The paper provides a rigorous empirical analysis of this relationship in a comprehensive cross-country panel by decomposing the emissions and GDP series into their growth and cyclical components using the HP filter. Focusing on the cyclical components, four robust facts emerge: (1) Emissions are procyclical. (2) Procyclicality of emissions is positively correlated with GDP per capita. (3) Emissions are cyclically more volatile than GDP. (4) Cyclical volatility of emissions is negatively correlated with GDP per capita. These facts are potentially important for the calibration of theoretical models used to evaluate climate change mitigation policies.