Fair Weather or Foul? The Macroeconomic Effects of El Niño
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Niño weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Niño shocks but also indirect effects through thirdmarkets. We contribute to the climate-macroeconomy literature by exploiting exogenous variation in El Niño weather events over time, and their impact on different regions crosssectionally, to causatively identify the effects of El Niño shocks on growth, inflation, energy and non-fuel commodity prices. The results show that there are considerable heterogeneities in the responses of different countries to El Niño shocks. While Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries (including the United States and European region), an El Niño occurrence has a growth-enhancing effect. Furthermore, most countries in our sample experience short-run inflationary pressures as both energy and non-fuel commodity prices increase. Given these findings, macroeconomic policy formulation should take into consideration the likelihood and effects of El Niño weather episodes.
Series:
Working Paper No. 2015/089
Subject:
Agricultural commodities Commodity prices Econometric analysis Environment Inflation Natural disasters Oil prices Prices Vector autoregression
English
Publication Date:
April 30, 2015
ISBN/ISSN:
9781475535495/1018-5941
Stock No:
WPIEA2015089
Pages:
30
Please address any questions about this title to publications@imf.org