Bank of Lithuania
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No 115

Carbon Intensity, Productivity, and Growth

  • Abstract

    The carbon intensity of U.S. output has experienced a secular decline in recent decades. Using an agnostic identification approach we show that news about future total factor productivity explain the bulk of longrun variation in emission intensity. News about green technologies give rise to similar dynamics. Both innovations precede a persistent increase of output and TFP. Yet, they are associated with only a temporary decline of emissions, followed by a hump-shaped rebound. New technologies have thus been a key driver of growth in recent decades but have not permanently reduced emissions. We discuss the Economic underpinnings of this rebound effect.

    Keywords: carbon emissions, carbon intensity, news shocks, structural vector autoregressions.

    JEL Classification: C32, O47, Q43, Q55.

No 88

What Moves Treasury Yields?

  • Abstract

    We characterize the joint dynamics of a large number of macroeconomic variables and Treasury yields in a dynamic factor model. We use this framework to identify a yield curve news shock as an innovation that does not move yields contemporaneously but explains a maximum share of the forecast error variance of yields over the next year. This shock explains more than half, and along with contemporaneous shocks to the level and slope of the yield curve, essentially all of the variation of Treasury yields several years out. The news shock is associated with a sharp and persistent increase in implied stock and bond market volatility, falling stock prices, an uptick in term premiums, and a prolonged decline of real activity and inflation. The accommodative response by the Federal Reserve leads to persistently lower expected and actual short rates. Treasury yields do not react contemporaneously to the yield curve news shock as the positive response of term premiums and the negative response of expected short rates initially offset each other. Identified shocks to realized and implied financial market volatility imply essentially the same impulse responses and are highly correlated with the yield news shock, suggesting that they act as unspanned or hidden factors in the yield curve.

    Keywords: term structure of interest rates, yield curve, news shocks, uncertainty shocks, structural vector autoregressions, factor-augmented vector autoregressions.                                                                                                                                                                  
    JEL codes: C55, E43, E44, G12.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.