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Weather Shocks

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  • Ewen Gallic

    () (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université)

  • Gauthier Vermandel

    (Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres, France Stratégie, Services du Premier Ministre)

Abstract

How much do weather shocks matter? The literature addresses this question in two isolated ways: either by looking at long-term effects through the prism of theoretical models, or by focusing on short-term effects using empirical analysis. We propose a framework to bring together both the short and long-term effects through the lens of an estimated DSGE model with a weather-dependent agricultural sector. The model is estimated using Bayesian methods and quarterly data for New Zealand using the weather as an observable variable. In the short-run, our analysis underlines the key role of weather as a driver of business cycles over the sample period. An adverse weather shock generates a recession, boosts the non-agricultural sector and entails a domestic currency depreciation. Taking a long-term perspective, a welfare analysis reveals that weather shocks are not a free lunch: the welfare cost of weather is currently estimated at 0.19% of permanent consumption. Climate change critically increases the variability of key macroeconomic variables (such as GDP, agricultural output or the real exchange rate) resulting in a higher welfare cost peaking to 0.29% in the worst case scenario.

Suggested Citation

  • Ewen Gallic & Gauthier Vermandel, 2019. "Weather Shocks," Working Papers halshs-02127846, HAL.
  • Handle: RePEc:hal:wpaper:halshs-02127846
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02127846
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    References listed on IDEAS

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    Cited by:

    1. Marcelo Arbex & Michael Batu, 2017. "Weather, Climate and the Economy: Welfare Implications of Temperature Shocks," Working Papers 1707, University of Windsor, Department of Economics.
    2. Chen, Chuanqi & Pan, Dongyang, 2020. "The Optimal Mix of Monetary and Climate Policy," MPRA Paper 97718, University Library of Munich, Germany.
    3. Stefan Mittnik & Willi Semmler & Alexander Haider, 2020. "Climate Disaster Risks—Empirics and a Multi-Phase Dynamic Model," Econometrics, MDPI, Open Access Journal, vol. 8(3), pages 1-27, August.

    More about this item

    Keywords

    agriculture; business cycles; climate change; weather shocks;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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