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Predictability of economic slowdowns in advanced countries over eight centuries: The role of climate risks

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  • Gupta, Rangan
  • Nel, Jacobus
  • Salisu, Afees A.
  • Ji, Qiang

Abstract

We analyze the predictive content of climate risks, proxied by change in global temperature anomaly and its volatility, on a dummy variable capturing periods of zero and negative growth rates of eight industrialized countries. In this regard, we apply a Probit model to longest possible historical datasets available for these countries covering 1311 till 2020, and control for inflation and interest rates. We find strong evidence that changes in global temperature anomaly and/or its stochastic volatility in particular, tend to predict slowdown or stagnation in all the eight economies at the different predictive horizons considered.

Suggested Citation

  • Gupta, Rangan & Nel, Jacobus & Salisu, Afees A. & Ji, Qiang, 2023. "Predictability of economic slowdowns in advanced countries over eight centuries: The role of climate risks," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s154461232300168x
    DOI: 10.1016/j.frl.2023.103795
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    Cited by:

    1. Jingfeng Zhao & Fan Sun, 2023. "Study on the Influence Mechanism and Adjustment Path of Climate Risk on China’s High-Quality Economic Development," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    2. Xin Sheng & Rangan Gupta & Oguzhan Cepni, 2023. "Time-Varying Effects of Extreme Weather Shocks on Output Growth of the United States," Working Papers 202324, University of Pretoria, Department of Economics.
    3. Rangan Gupta & Sarah Nandnaba & Wei Jiang, 2024. "Climate Change and Growth Dynamics," Working Papers 202404, University of Pretoria, Department of Economics.
    4. Wenting Liao & Xin Sheng & Rangan Gupta & Sayar Karmakar, 2024. "Extreme Weather Shocks and State-Level Inflation of the United States," Working Papers 202402, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Growth; Climate risks; Probit model; Predictions;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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