Climate policy uncertainty and dynamic spillovers in green bond markets: comparative evidence from the United States, Europe, and Asia

This study utilizes the Time-Varying Parameter Vector Autoregression (TVP-VAR) model to explore the dynamic impact of climate policy uncertainty on the green bond market, focusing particularly on the comparison among the three major regional markets, namely the United States, Europe, and Asia. Our findings indicate an overall negative correlation between climate policy uncertainty and the performance of green bonds, with significant time-varying characteristics and regional disparities. Across all regions, short-term responses are pronounced, temperate in the medium term, and eventually diminish towards near stability in the long term. The US and European markets respond similarly to climate policy uncertainty with Europe’s response faster and more pronounced. Conversely, the Asian market demonstrates a more sensitive and volatile short-term reaction. The market responses during three critical periods: the Sino-U.S. trade war, the COVID-19 pandemic, and the Russia–Ukraine war, are also discussed. Lastly, the impulse response between the three bond markets demonstrates that global green bond markets are interconnected, with the US market exerting dominant spillover effects on Europe and Asia, while Asia’s influence on global green finance trends is relatively weaker. These findings provide crucial insights for policymakers, investors, and market regulators as they navigate the intricacies of climate-related financial markets.