Cashin, P., Mohaddes, K. and Raissi, M. .

Fair Weather or Foul? The Macroeconomic Effects of El Niño

CWPE1418

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. The results of our Global VAR model of the world economy indicate that the economic consequences of El Niño shocks differ across countries. 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, the El Niño shock has a growth-enhancing effect; some (for instance the U.S.) due to direct effects while others (for instance the European region) through positive spillovers from major trading partners. Furthermore, most countries in our sample experience short-run in 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 episodes.

Keywords: Global VAR (GVAR), interconnectedness, global macroeconomic modeling, impulse responses, international business cycle, El Niño, oil and non-fuel commodity prices

JEL Codes: C32 E17 E32 F44 F47 Q11 Q41

Author links: Kamiar Mohaddes  

PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1418.pdf

Open Access Link: https://doi.org/10.17863/CAM.4955

Published Version of Paper: Fair weather or foul? The macroeconomic effects of El Niño, Cashin, P., Mohaddes, K. and Raissi, M., Journal of International Economics (2017)

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