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El Niño and World Primary Commodity Prices: Warm Water or Hot Air?

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Allan D. Brunner

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Abstract

This paper examines the historical effects of the El Niño - Southern Oscillation (ENSO) cycle on world prices and economic activity. The primary focus is on world real non-oil primary commodity prices, although the effects on G-7 consumer price inflation and GDP growth are also considered. This paper has several distinct advantages over previous studies. First, several econometric models are estimated using fairly broad measures of prices and economic activity. Second, the models include continuous measures of ENSO intensity (sea surface temperature and sea-level air pressure anomalies in the Pacific Ocean) rather than dummy variable measures. Finally, confidence intervals are constructed for all estimated effects of ENSO on world prices and economic activity. The analysis indicates that ENSO has economically important and statistically significant effects on world real commodity prices. A one-standarddeviation positive surprise in ENSO, for example, raises real commodity price inflation about 3.5 to 4 percentage points. Moreover, ENSO appears to account for almost 20% of commodity price inflation movements over the past several years. ENSO also has some explanatory power for world consumer price inflation and world economic activity, accounting for approximately 10% to 20% of movements in those variables. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 84 (2002)
Issue (Month): 1 (February)
Pages: 176-183
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Handle: RePEc:tpr:restat:v:84:y:2002:i:1:p:176-183

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cline, William R, 1996. "The Impact of Global Warming on Agriculture: Comment," American Economic Review, American Economic Association, vol. 86(5), pages 1309-11, December. [Downloadable!] (restricted)
  2. Saunders, Edward M, Jr, 1993. "Stock Prices and Wall Street Weather," American Economic Review, American Economic Association, vol. 83(5), pages 1337-45, December. [Downloadable!] (restricted)
  3. Mendelsohn, Robert & Nordhaus, William D & Shaw, Daigee, 1994. "The Impact of Global Warming on Agriculture: A Ricardian Analysis," American Economic Review, American Economic Association, vol. 84(4), pages 753-71, September. [Downloadable!] (restricted)
  4. Adams, Richard M, et al, 1995. "Value of Improved Long-Range Weather Information," Contemporary Economic Policy, Oxford University Press, vol. 13(3), pages 10-19, July.
  5. Norrbin, Stefan C. & Schlagenhauf, Don E., 1988. "An inquiry into the sources of macroeconomic fluctuations," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 43-70, July. [Downloadable!] (restricted)
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  1. Ariaster Baumgratz Chimeli & Francisco de Assis de Souza Filho, 2004. "Climate Forecasting And Emergency Policies Evidence Of Opportunities From Ceará, Brazil," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 118, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  2. Rodrigo Avella, . "Efecto de las Sequías Sobre la Inflación en Colombia," Borradores de Economia 183, Banco de la Republica de Colombia. [Downloadable!]
  3. Thanarak Laosuthi & David D. Selover, 2007. "Does El Nino Affect Business Cycles," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 21-42, Winter. [Downloadable!]
  4. Rodney Ramcharan, 2005. "How Big Are The Benefits of Economic Diversification?: Evidence from Earthquakes," IMF Working Papers 05/48, International Monetary Fund. [Downloadable!]
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