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Pierre Guérin and Felix Suntheim

of the relevant parameters and aggregated at an annual frequency by taking an average of the monthly values over the calendar year. We exclude from this analysis the oil inventory demand shock (also referred as a “speculative demand shock” in the oil market literature), since this shock plays a limited role in explaining oil price fluctuations in the VAR model of Baumeister and Hamilton (2019) . 26 Our econometric analysis suggests that the source of the oil price fluctuation is indeed key to understanding firms’ environmental response to a shock. Historically

Pierre Guérin and Felix Suntheim
The shutdown in economic activity due to the coronavirus disease (COVID-19) crisis has resulted in a short-term decline in global carbon emissions, but the long-term impact of the pandemic on the transition to a low-carbon economy is uncertain. Looking at previous episodes of financial and economic stress to draw implications for the current crisis, we find that tighter financial constraints and adverse economic conditions are generally detrimental to firms’ environmental performance, reducing green investments. The COVID-19 crisis could thus potentially slow down the transition to a low-carbon economy. In light of the urgent need to reduce global greenhouse gas emissions, these findings underline the importance of climate policies and green recovery packages to boost green investment and support the energy transition. Policies that support the sustainable finance sector, such as improved transparency and standardization, could further help mobilize green investments.