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El Nino and world primary commodity prices: warm water or hot air?

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  • Allan D. Brunner

Abstract

This paper examines the historical effects of El Niño on world prices and economic activity. Although the primary focus is on world real non-oil primary commodity prices, 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 El Niño 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 El Niño on world prices and economic activity. ; The analysis indicates that El Niño has economically-important and statistically-significant effects on world real commodity prices. A one-standard-deviation surprise in El Niño, for example, raises real commodity price inflation about 3-1/2 to 4 percentage points. Moreover, El Niño appears to account for over 20 percent of commodity price inflation movements over the past several years. El Niño also has some explanatory power for world consumer price inflation and world economic activity, accounting for about 10 to 15 percent of movements in those variables.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1998/608/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1998/608/ifdp608.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 608.

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Date of creation: 1998
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Handle: RePEc:fip:fedgif:608

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Keywords: Prices;

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  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.
  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.
  3. Maddala, G S, et al, 1997. "Estimation of Short-Run and Long-Run Elasticities of Energy Demand from Panel Data Using Shrinkage Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 90-100, January.
  4. Richard M. Adams & Kelly J. Bryant & Bruce A. Mccarl & David M. Legler & James O'Brien & Andrew Solow & Rodney Weiher, 1995. "Value Of Improved Long-Range Weather Information," Contemporary Economic Policy, Western Economic Association International, vol. 13(3), pages 10-19, 07.
  5. 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.
  6. 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.
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