crispeerezb
commented
2 months ago Hi again @eglembergman
I have been working on the most appropriate way to adjust gross output to capture declines in output accurately. Upon reflection, I believe the best approach is to use the idea of Purchasing Power Parity (PPP) adjusted GDP. PPP adjusted GDP differs from nominal GDP in that it reflects the relative purchasing power of countries, rather than simply measuring the value of output in market dollars. This adjustment allows to compare the real value of goods and services produced, considering the cost of living and price differences between countries, and is not directly affected by exchange rate fluctuations (this idea is probably already clear to you but I can develop the proposal better this way). Having said that, I did some tests that I leave you below:
1.- The first thing I did to see what this gave me was to use data from the world bank to do it directly and quickly and see what it gave me. Then, I downloaded the GDP adjusted by PPP and the CO2 emissions in kg. With that I made the carbon intensity variable and made an analysis similar to the previous one. Here are the results of the event-study and some graphs that show the evolution of carbon intensity for the countries that had large devaluations (note that the vertical line in the second pdf are the periods of devaluations).
event-study-gdp-ppa-world-bank.pdf summary-co2-rates-evolution-for-countries-with-LD.pdf
2.- So, note that the event-study does not look so good, however, we must be cautious, because although the World Bank data are relatively consistent with ours, they are poorer in terms that there is no data for several countries before 2000 and other countries do not appear at all (control group countries). In addition, here I use GDP which is not exactly our $Y_{it}$.
3.- Finally, what I propose is the following:
- [ ] Have two variables for $Y{it}$ and estimate the results with both. The first one would be the one we already have and the second one would be our gross product (but without adjusting for the US GDP deflator), then convert to local currency (this is fast because I already got the exchange rate of the dollar with the local currency for all countries from the IMF) and get the PPP adjusted gross ouput (we only need to multiply that nominal product by the ratio that the IMF gives us, it is a data that I also already have). With that we would have our $Y{it}$ adjusted by PPP. Then, the exchange rate should no longer be a concern.
Let me know what you think of the idea, I think I can do it during the weekend and we will see the results on Tuesday in our meeting.
Hi @eglembergman
Here I'm opening a new issue to check the fall in gross output. Below more details:
During the analysis we see that the CO2 intensity of countries increases in periods of large devaluations. However, it also appears that the increase in the ratio is explained by a fall in output and, therefore, it is of vital importance to verify that the gross output actually falls because of a decrease in production and not because of some accounting issue due to the exchange rate.
I will propose a few strategies to verify what I mentioned above and I hope close this issue in the next 5 days.