Fair Weather or Foul? The Macroeconomic Effects of El Niño

By Paul Cashin, Kamiar Mohaddes, Mehdi Raissi

April 30, 2015

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Paul Cashin, Kamiar Mohaddes, and Mehdi Raissi. Fair Weather or Foul? The Macroeconomic Effects of El Niño, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Agricultural commodities, Commodity prices, Econometric analysis, Environment, Inflation, Natural disasters, Oil prices, Prices, Vector autoregression

Keywords: Africa, Asia and Pacific, Commodity prices, El Niño condition, El Niño event, El Niño shock, El Niño weather shock, El Niño weather shocks, El Niño year, El Niño-economy relationship, Europe, Global, Global macroeconometric modeling, Inflation, International business cycle, Natural disasters, Oil and non-fuel commodity prices, Oil prices, Primary sector, South America, Vector autoregression, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/089
Stock No:

WPIEA2015089
ISBN:

9781475535495
ISSN:

1018-5941

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