The impact of price persistence on greenhouse gas emissions : A fractional integration approach

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Abstract

This study explores the characteristics of price persistence and greenhouse gas emissions in the EU27. We use fractional integration, which is a more general approach than the classical methods based on stationary/unit roots tests since fractional degrees of differentiation are permitted. For gas emissions, the findings indicate that mean reversion occurs in the majority of the series. For prices, mean reversion take place in the cases of Italy, Spain, Portugal, and Greece. For the rest of the countries, the differencing parameter is found to be 1 or significantly above 1, thus rejecting mean reversion. These findings are not only statistically significant but also highly policy-relevant: identifying whether shocks are temporary or permanent directly informs the design of appropriate responses. Temporary shocks may be addressed through short-term, cyclical interventions, whereas permanent shocks call for structural and long-term policy measures.