Business Topics. Patrick Minford October 2009
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1 Business Topics Patrick Minford October 2009
2 Agenda Indicators and forecasts Housing Testing the climate change model
3 Polynomial Cointegration Tests of the Anthropogenic Theory of Global Warming Michael Beenstock Yaniv Reingewertz Hebrew University of Jerusalem October 2009
4 Introduction IPCC: Carbon emissions induce global warming Anthropogenic theory tested by calibration Since 1997 climatologists use cointegration Greenhouse gases are I(2) Polynomial cointegration tests reject anthropogenic theory
5 Road Map Climate Data: Palaeoclimatics IPCC and politics of global warming Circular Flow Models Greenhouse gas theory Polynomial cointegration Results
6 Global Temperature since 1850
7 CO2 Emissions since 1850
8 IPCC Intergovernmental Panel on Climate Change Established in 1988 by UNEP & WMO Report: The balance of evidence suggests a discernable human influence on global climate. Doubling of atmospheric CO2 will raise global temperature by 1-3.5ºC. Kyoto Protocol Report: Greenhouse effect very likely to exist. Doubling of CO2 concentrations raises temperature by ºC Report: Most of the observed increase in global average temperature since the mid 20 th century is very likely.. Doubling raises temperature by ºC. Stern Review 2007 Obama 2009
9 Main Conclusions No long run relationship between global temperature and the level of atmospheric CO2 concentration. Temperature and solar irradiance are stationary in 1 st differences. Greenhouse gases are stationary in 2 nd differences since Greenhouse theory confirmed in changes in atmospheric CO2. Blame the sun: solar irradiance at 10,000 year high. Economic growth not to blame for global warming. Reverse causality is likely from temperature to atmospheric CO2. Greenhouse theory corroborated by calibration in IPCC.
10 Newsweek April 18, 1975 The central fact is that after three quarters of a century of extraordinarily mild conditions, the earth s climate seems to be cooling down Climatologists are pessimistic that political leaders will take any action to compensate for climatic change, or even to allay its effects. They concede that some of the more spectacular solutions proposed such as melting the arctic ice cap by covering it with black soot might create problems far greater than they solve.
11 Greenhouse Gases Atmospheric concentrations (particles per mil): Oxygen (~20%), Nitrogen (~80%), Greenhouse gas (~0.04%), Water (~1%) CO %, methane (CH 4 ) %, nitrous oxide (N 2 O) % Residence times (approx): CH 4 10 years, N 2 O 100 years, CO2 absorbed by oceans & biosphere Radiative forcing (watts per m 2 ): rfco 2 = αlnco 2 α varies inversely with CO 2 α N2O = 10α α CH4 CH4 = 20α CO2
12 The Greenhouse Effect Source: DEFRA (2005)
13 Palaeoclimatics
14
15
16 Temperature since 800
17 Theory
18 A Simple GCM T = temperature S = solar irradiance C = atmospheric CO2 concentration E = anthropogenic emissions of CO2 A Uptake of atmospheric CO2 GWP = gross world product t t t t t t t t t t t t t t t e GWP E Law Henrys v E C T A A E C u C S T + + = = = = ln ln ) ' ( π φ β β β β α α α
19 General Solution of GCM E(u) = E(v) = 0 (10) ) (1 1 ) ( (9) ) (1 ) (1 1 ) ( = + = + = + = + = = = i i t i i i t i o t i i t i i i t i i i t i t E S C E S S T λ β λ αβ λ β βα λ λ β α λ α λ β α λ β α βα λ ) (1 ) ( βα β β α βα β βα β λ = > < + = de dt
20 Climatic Equilibrium
21 Empirical Methodology
22 Calibration v Estimation Meteorologists & climatologists calibrate. Economists borrowed calibration in 1980s. DSGE models = GCM models. Calibration mimics empirical moments. Critique: Pagan (1994), Hansen & Heckman (1996), Sims (1996). IPCC informed by calibration. Observational equivalence. Policy implications not robust.
23 Estimation Spurious regression in nonstationary data. Cointegration tests: Stern & Kaufmann (1997), Kaufmann & Stern (2002) Kaufmann, Kauppi & Stock (2006) Mills (2009) Liu & Rodriguez (2005) Results confirm IPCC.
24 Order of Integration Covariance stationarity: mean, variance, covariance independent of time. d Y t = e t ~ I(0) Y ~ I(d) Dickey-Fuller (1976) test: H 0 : d = 1 Phillips-Perron (1988) test: H 0 : d =1 Kwiatkowsky, Phillips, Schmidt & Shin (1992): H 0 : d = 0
25 Principles of Cointegration Y = α + βx + u Y ~ I(1) X ~ I(0) or I(2) plimβ = 0 X ~ I(1) u ~ I(1) spurious regression u ~ I(0) cointegrated (not spurious) Superconsistency (T 1½ ): plimβ = β despite dependence between X and u t statistics invalid
26 Polynomial Cointegration Engle-Granger T = α 0 + α 1 S + α 2 C + α 3 M + u T ~ I(1), S ~ I(1), C ~ I(2), M ~ I(2) u ~ I(0)? C = γ 0 + γ 1 M + g g ~ I(1)? T = α 0 + α 1 S + α 4 g + u Haldrup (1994): C = β 0 +β 1 S + β 2 T + β 3 M + v Kaufmann et al (2006), Mills (2009) use T as regressor!
27 Polynomial Cointegration Johansen Method Johansen (1995) Juselius (2007) C t = ω 0 + ω 1 M t + z t z ~ I(1) C t = ω 0 t + ω 1 M t + z t T t = π 0 + π 1 S t + π 2 z t + p t Liu and Rodriguez (2005) S strongly exogenous! p ~ I(0)
28 Data
29 Data Sources Annual Most data from NASA. Emissions: Boden, Marland & Andres (2009). Temperature data from Uptake of CO2. Data problems
30 Uptake of CO2 Biosphere Ocean Invisible Sink CO2 = E A E anthropogenic emissions V volcanic emissions A = B + O + IS - V (net uptake) Deforestation decreases B
31 Residual Net Uptake of CO2 Absorption
32 Rate of Uptake of CO2 Absorption rate
33 Solar Irradiance
34 Methane CH4 concentration (PPM)
35 Nitrous Oxide N2O concentration (PPM)
36 Temperature v C02 CO2 and T Index, 1880= CO2 T
37 DlnCO2-5 year av. Growth in CO2 MA(5)
38 Results
39 The Order of Integration of Atmospheric CO2 Test d Root Trend log lags ADF DW PP KPSS yes no no no no no no yes no no no no no no no no The PP test used the Newey-West bandwidth default of 4 lags and the KPSS test uses a bandwidth of 3 lags. The number of lags in the table refers to the number of augmentations in the ADF test statistic. In tests 2-8 the critical values for ADF and PP at p = are and for KPSS In test 1 these critical values are and respectively.
40 Orders of Integration Series d CO2 2 Temperature 1 CO2 Emissions 1 Solar irradiation 1 Methane 2 N2O 2 CO2 absorption 1 Rate of absorption 1
41 Greenhouse Gases rfco 2 = rfCH N 2 O+g Sample: s = R 2 = d g = 0: ADF4 = PP = KPSS = d g = 1: ADF4 = PP = KPSS = 0.085
42 Temperature Model Engle - Granger Modified greenhouse model: 1 st differences T = S rfco rfn 2 O 41.5 rfch g Sample: se = R 2 = ADF4 = *** PP = *** KPSS = 0.311*** Haldrup critical value = -5.2 Dropping g makes no difference Dropping S does! ADF = -2.1 KPSS = 1.1 Dropping GHG: ADF = KPSS = 0.5
43 A COMMON MISTAKE Haldrup (1994): LHS should be I(2) Kaufmann & Stern (2002), Kaufmann, Kauppi and Stock (2006), Mills (2009): LHS = T ~ I(1) Incorrect ADF -7 Correct ADF - 2.5! Critical value -5.2
44 Uptake of C02 Engle - Granger A t = E t T t Sample s = R 2 = ADF4 = PP = KPSS = Drop T: ADF = PP = -9 KPSS = Drop E: ADF = PP = KPSS = 1.34 A/CO2 = U t = E t 1.298T t Sample s = 2.02 R 2 adj = ADF4 = PP = KPSS = Drop T : ADF = PP = KPSS = Drop E: ADF = PP KPSS = 1.36
45 Error Correction Model Temperature T t = T t T t ( S t - S t-2 ) rfc t (0.5) (1.71) (2.51) (2.09) (4.08) rfn 2 O t u t-1 (2.41) (6.38) Adj R squared = DW = 1.97 LM = 2.24 se = 0.12
46 Error Correction Model Uptake Rate CO2 U t = EC t U t-1 (-0.06) (-4.85) (-2.15) -0.16( U t-1 - U t-4 ) E t-5 (-3.02) (1.65) T t-2 (1.23) R 2 adj = se = DW = LM = 0.909
47 Impulse Responses for Temperature Year Solar Irradiance 1 watt/m 2 rfco 2 1 watt/m 2 rfco 2 1 watt/m ? rfco 2 = lnCO 2 T e= CO 2 CO T 2 = dco2 m drfco 2 CO T 2 = ( e + CO m T 2 ) CO 2
48 Conclusions Greenhouse gases are I(2) since 1850 Temperature and solar irradiance are I(1) Global temperature does not polycointegrate with greenhouse gases Sun is main driver of global warming Misuse of cointegration Anthropogenic evidence is spurious Johansen polycointegration: methodological lacuna
49 The Bottom Line Rise in global temperature in 20th century 0.7 degrees C. Solar irradiance rose by about 0.3 watts (per sq.m.), contributing 0.44 degrees. Atmospheric CO2 rose 35% in the century; delta(rfco2) also rose, contributing 0.15 degrees- is now stable. On latest data T has stabilized since 1990; so has solar irradiance. If the sun continues to be stable, T will also stabilize.
50
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