Exploring the impact of monetary policy stance on clean energy stocks: evidence from markov switching model

This study aims to investigate the effects of monetary policies on clean energy stocks in the United States from 2001 to 2021, addressing the knowledge gap on the influence of various monetary policy regimes on clean energy investments, which are deemed critical for financing the global clean energy transition and for promoting sustainable economic development. The study used a Markov Regime Switching approach (MRS) to analyze the relationship between the Shadow Federal Funds Rate and the WilderHill Clean Energy Index, while a Threshold Regression approach is used to validate the results. The results showed a strong asymmetric relationship between monetary policies and clean energy stocks, where monetary policies have a statistically significant and positive effect on clean energy stocks during low volatility regimes but an insignificant effect during high volatility regimes. Moreover, it showed a stronger effect of conventional monetary policies compared to unconventional monetary policies, as well as a weakened effect of monetary policies during high uncertainty. The results also showed a significant effect of market volatility on monetary policies. The study is limited in terms of its focus on the U.S. market, as it might have limited applicability to other markets. The MRS approach used in the study might have limitations in fully capturing extreme structural changes. The study contributes to the knowledge gap on understanding the relationship between monetary policies and clean energy stocks by exploring different monetary policies and including unconventional variables. The findings inform policymakers and investors about monetary policies in different regimes.