{
  "title": "Weather Shocks and Exchange Rate Flexibility",
  "publication": "IMF Working Papers, May 13, 2022",
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  "summary": "This paper assesses the stabilization properties of fixed versus flexible exchange rate regimes and aims to answer this research question: Does greater exchange rate flexibility help an economy’s adjustment to weather shocks?",
  "sections": [
    {
      "heading": "Research question and approach",
      "content": "- Research question: Does greater exchange rate flexibility help an economy’s adjustment to weather shocks?\n- Method: Quantify the impact of weather shocks on real per capita GDP growth under fixed (pegged) versus flexible exchange rate regimes."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Weather shocks are generally detrimental to per capita income growth, but the impact is less severe under flexible exchange rate regimes.\n- Medium-term adverse growth impact of a 1 degree Celsius increase in temperature:\n  - Under a pegged regime: about –1.4 percentage points on average.\n  - Under a flexible regime: –0.6 percentage point.\n- Exchange rate flexibility mitigates the initial impact of weather shocks and promotes a faster recovery."
    },
    {
      "heading": "Mechanisms identified",
      "content": "- Under flexible regimes: depreciation of the nominal exchange rate supports real export growth.\n- Under pegged regimes and high public debt: countercyclical fiscal policy may not be effective, contrary to standard theoretical predictions.\n- Implication: the effectiveness of stabilization depends on the policy mix and the presence of precautionary fiscal buffers."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Favor exchange rate flexibility as a tool to reduce the medium-term growth cost of temperature-related weather shocks.\n- Strengthen policy coordination:\n  - Use exchange rate flexibility to support external adjustment and export growth after weather shocks.\n  - Recognize limits to countercyclical fiscal policy under pegged regimes when debt is high; prioritize precautionary (fiscal) buffers and appropriate policy mixes.\n\nSource: Weather Shocks and Exchange Rate Flexibility, Selim A Elekdag and Maxwell Tuuli, May 13, 2022 (IMF Working Paper).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2022/05/13/weather-shocks-and-exchange-rate-flexibility-517525"
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    "Authors: Selim A Elekdag, Maxwell Tuuli",
    "Published: May 13, 2022",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400207600.001",
    "Research question: Does greater exchange rate flexibility help an economy’s adjustment to weather shocks?",
    "Method: Quantify the impact of weather shocks on real per capita GDP growth under fixed (pegged) versus flexible exchange rate regimes.",
    "Weather shocks are generally detrimental to per capita income growth, but the impact is less severe under flexible exchange rate regimes.",
    "Medium-term adverse growth impact of a 1 degree Celsius increase in temperature:",
    "Exchange rate flexibility mitigates the initial impact of weather shocks and promotes a faster recovery.",
    "Under flexible regimes: depreciation of the nominal exchange rate supports real export growth.",
    "Under pegged regimes and high public debt: countercyclical fiscal policy may not be effective, contrary to standard theoretical predictions.",
    "Implication: the effectiveness of stabilization depends on the policy mix and the presence of precautionary fiscal buffers.",
    "Favor exchange rate flexibility as a tool to reduce the medium-term growth cost of temperature-related weather shocks.",
    "Strengthen policy coordination:",
    "**Working Paper**"
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