Macroeconomic Outcomes in Disaster-Prone Countries
IMF Working Papers, October 11, 2019
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Bibliographic details
- Authors: Alessandro Cantelmo, Giovanni Melina, Chris Papageorgiou
- Published: October 11, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513515380.001
Methodology
- Model: Dynamic stochastic general equilibrium (DSGE) model.
- Solution method: Taylor projection, a solution method shown to deal effectively with high-impact weather shocks calibrated in accordance to empirical evidence.
- Focus: Channels through which natural disaster shocks affect macroeconomic outcomes and welfare in disaster-prone countries.
Key findings
- Weather shocks have large and persistent effects that significantly impact the income convergence path of disaster-prone countries.
- Relative to non-disaster-prone countries, on average, these shocks cause a welfare loss equivalent to a permanent fall in consumption of 1.6 percent.
- Welfare gains to countries that self-finance investments in resilient public infrastructure are found to be negligible.
- International aid has to be sizable to achieve significant welfare gains.
- It is more cost-effective for donors to contribute to the financing of resilience before the realization of disasters, rather than disbursing aid after their realization.
Policy implications and recommendations
- Prioritize donor financing of resilience-building measures before disasters occur, as this is more cost-effective than post-disaster aid disbursements.
- Recognize that self-financing of resilient public infrastructure by disaster-prone countries yields negligible welfare gains; international assistance needs to be sizable to meaningfully improve welfare outcomes.
- Incorporate high-impact weather shock calibration into macroeconomic assessments and policy planning for disaster-prone countries, using solution methods (such as Taylor projection) capable of handling such shocks.
Additional notes
- Authors: Alessandro Cantelmo, Giovanni Melina, Chris Papageorgiou.
- Publication: IMF Working Papers, Issue 2019/217, Pages: 52.
- DOI: https://doi.org/10.5089/9781513515380.001
Alessandro Cantelmo, Giovanni Melina, and Chris Papageorgiou. "Macroeconomic Outcomes in Disaster-Prone Countries", IMF Working Papers 2019, 217 (2019), accessed 9/18/2026, https://doi.org/10.5089/9781513515380.001
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