Investigating the effect of economic policy uncertainty on CO2 emissions using TVP-FAVAR approach

Environmental degradation, global warming, and climate change have become dangerous factors and pose a serious threat to global security. One of these factors is the threat of greenhouse gasses, mainly caused by the emission of CO2 carbon dioxide. In an environment of uncertainty in economic policies, energy efficiency policies are also not effectively implemented due to weak regulations. Incompatible economic policies may also lead to higher energy consumption and thus greater environmental impact. Therefore, this study investigates the role of economic policy uncertainty on carbon dioxide (CO2) emissions in Iran during the period from 1979 to 2018 using the time series method of the factor-augmented vector autoregressive (FAVAR) model and the time-varying parameter (TVP) model proposed by Koop and Korobilis (2013). In addition to investigating the impact of economic policy uncertainty, the impact of globalization on CO2 emissions is also examined. The experimental results show that first, more energy consumption leads to more pollution; second, economic policy uncertainty reduces the quality of the environment; and third, globalization increases the destructive effect of energy consumption on CO2 emissions.