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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Fair weather or foul? the macroeconomic effects of El Niño
Paul Cashin
Kamiar Mohaddes
Mehdi Raissi
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.


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Paul Cashin & Kamiar Mohaddes & Mehdi Raissi, Fair weather or foul? the macroeconomic effects of El Niño, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 239, 01 May 2015.
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DOI: 10.24149/gwp239
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