The Dynamic Effects of Weather Shocks on Agricultural Production

Abstract

This paper investigates the dynamic effects of weather shocks on monthly agricultural production in Peru, using a Local Projection framework. An adverse weather shock, measured by an excess of heat or rain, always generates a delayed negative downturn in agricultural production, but its magnitude and duration depend on several factors, such as the type of crop concerned or the timing at which it occurs. On average, a weather shock – a temperature shock – can cause a monthly decline of 5% in agricultural production for up to four consecutive months. The response is time-dependent: shocks occurring during the growing season exhibit a much larger response. At the macroeconomic level, weather shocks are recessionary and entail a decline in inflation, agricultural production, exports, exchange rate and GDP.

Keywords: Weather shocks, Agriculture, Local projections, VAR