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How Volatile is ENSO?

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  • LanFen Chu

    (Institute of Economics, Academia Sinica, Taipei, Taiwan.)

  • Michael McAleer

    (Econometrisch Instituut (Econometric Institute), Faculteit der Economische Wetenschappen (Erasmus School of Economics), Erasmus Universiteit, Tinbergen Instituut (Tinbergen Institute).)

  • Chi-Chung Chen

    (Department of Applied Economics, National Chung Hsing University)

Abstract

The El Niños Southern Oscillations (ENSO) is a periodical phenomenon of climatic interannual variability, which could be measured through either the Southern Oscillation Index (SOI) or the Sea Surface Temperature (SST) Index. The main purpose of this paper is to analyze these two indexes in order to capture the volatility inherent in ENSO. The empirical results show that both the ARMA(1,1)-GARCH(1,1) and ARMA(3,2)-GJR(1,1) models are suitable for modelling ENSO volatility accurately. The empirical results show that 1998 is a turning point, which indicates that the ENSO strength has increased since 1998. Moreover, the increasing ENSO strength is due to the increase in greenhouse gas emissions. The ENSO strengths for SST are predicted for the year 2030 to increase from 29.62% to 81.5% if global CO2 emissions increase by 40% to 110%, respectively. This indicates that we will be faced with an even stronger El Nino or La Nina in the future if global greenhouse gas emissions continue to increase unabated.

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File URL: http://eprints.ucm.es/12871/1/1121.pdf
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Bibliographic Info

Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 2011-21.

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Length: 32 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:ucm:doicae:1121

Note: The authors are most grateful to the Editor and three referees for helpful comments and suggestions. The second author acknowledges the financial support of the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.
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Keywords: ENSO; SOI; SOT; Greenhouse Gas Emissions; Volatility; GARCH; GJR; EGARCH.;

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