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Weather, Prices and Spillovers

Author

Listed:
  • Annalisa Marini

    (University of Exeter)

  • Steve McCorriston

    (University of Exeter)

Abstract

Changes in weather patterns associated with climate change can be an important determinant of commodity price volatility. In this paper, we provide new insights into this issue from two perspectives. First, by using detailed country-level precipitation data for a specific commodity (bananas), and employing a panel VAR model, we show that untypical rainfall patterns are an important influence on export prices and that the impact on export prices varies across exporters given the largely uncorrelated experience of anomalous levels of precipitation. Second, we show that source-specific rainfall patterns generate spillovers across competing exporters and these spillover effects can dominate the own-country precipitation anomaly effect. Accounting for these spillover effects is important for several reasons: (i) the aggregate impact of weather fluctuations on importers depends on the magnitude of these effects which we show to be quantitatively strong; (ii) for some exporters, the spillover effect on export prices can be a more important source of price volatility than their own experience of untypical weather; (iii) given the frequency of precipitation anomalies across all export countries, untypical variations in weather is an important source of commodity price volatility for all exporters and importers. In sum, the impact of climate-related weather events on prices is more nuanced than recent research has suggested.

Suggested Citation

  • Annalisa Marini & Steve McCorriston, 2019. "Weather, Prices and Spillovers," Discussion Papers 1905, University of Exeter, Department of Economics.
  • Handle: RePEc:exe:wpaper:1905
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    File URL: http://people.exeter.ac.uk/RePEc/dpapers/DP1905.pdf
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    References listed on IDEAS

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    1. repec:eee:inecon:v:107:y:2017:i:c:p:1-18 is not listed on IDEAS
    2. Fabio Canova & Matteo Ciccarelli, 2009. "Estimating Multicountry Var Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 929-959, August.
    3. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    4. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
    5. Machovina, Brian & Feeley, Kenneth J., 2013. "Climate change driven shifts in the extent and location of areas suitable for export banana production," Ecological Economics, Elsevier, vol. 95(C), pages 83-95.
    6. Chudik, Alexander & Pesaran, M. Hashem, 2011. "Infinite-dimensional VARs and factor models," Journal of Econometrics, Elsevier, vol. 163(1), pages 4-22, July.
    7. Gouel, Christophe & LaBorde, David, 2017. "The Crucial Role of International Trade in Adaptation to Climate Change," 2017: Globalization Adrift, December 3-5, 2017, Washington, D.C. 266841, International Agricultural Trade Research Consortium.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Weather; Spillovers; Export Prices; Panel Vector Autoregression (PVAR);

    JEL classification:

    • F00 - International Economics - - General - - - General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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