Fair Weather or Foul? The Macroeconomic Effects of El Niño

29 Pages Posted: 4 Sep 2015

See all articles by Paul Anthony Cashin

Paul Anthony Cashin

International Monetary Fund (IMF)

Kamiar Mohaddes

University of Cambridge - Judge Business School; University of Cambridge - King's College, Cambridge

Mehdi Raissi

International Monetary Fund (IMF) - Fiscal Affairs Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2015

Abstract

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 third-markets. We contribute to the climate-macroeconomy literature by exploiting exogenous variation in El Niño weather events over time, and their impact on different regions cross-sectionally, 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.

Keywords: El Niño weather shocks, oil and non-fuel commodity prices, global macroeconometric modeling, international business cycle

JEL Classification: C32, F44, O13, Q54

Suggested Citation

Cashin, Paul Anthony and Mohaddes, Kamiar and Raissi, Mehdi, Fair Weather or Foul? The Macroeconomic Effects of El Niño (May 1, 2015). USC-INET Research Paper No. 15-25, Available at SSRN: https://ssrn.com/abstract=2654410 or http://dx.doi.org/10.2139/ssrn.2654410

Paul Anthony Cashin

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Kamiar Mohaddes (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

University of Cambridge - King's College, Cambridge ( email )

King's Parade
Cambridge, CB2 1ST
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

Mehdi Raissi

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

HOME PAGE: http://https://sites.google.com/site/mehdiraissi/

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