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Fair Weather or Foul? The Macroeconomic Effects of El Niño

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  • Paul Cashin
  • Kamiar Mohaddes
  • Mehdi Raissi

Abstract

This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Niño weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Niño shocks but also indirect effects through thirdmarkets. We contribute to the climate-macroeconomy literature by exploiting exogenous variation in El Niño weather events over time, and their impact on different regions crosssectionally, to causatively identify the effects of El Niño shocks on growth, inflation, energy and non-fuel commodity prices. The results show that there are considerable heterogeneities in the responses of different countries to El Niño shocks. While Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries (including the United States and European region), an El Niño occurrence has a growth-enhancing effect. Furthermore, most countries in our sample experience short-run inflationary pressures as both energy and non-fuel commodity prices increase. Given these findings, macroeconomic policy formulation should take into consideration the likelihood and effects of El Niño weather episodes.

Suggested Citation

  • Paul Cashin & Kamiar Mohaddes & Mehdi Raissi, 2015. "Fair Weather or Foul? The Macroeconomic Effects of El Niño," IMF Working Papers 15/89, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:15/89
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    Cited by:

    1. Kamiar Mohaddes & Mehdi Raissi, 2015. "The U.S. Oil Supply Revolution and the Global Economy," IMF Working Papers 15/259, International Monetary Fund.
    2. Mohaddes, Kamiar & Pesaran, M. Hashem, 2017. "Oil prices and the global economy: Is it different this time around?," Energy Economics, Elsevier, vol. 65(C), pages 315-325.
    3. Cashin, Paul & Mohaddes, Kamiar & Raissi, Mehdi, 2017. "China's slowdown and global financial market volatility: Is world growth losing out?," Emerging Markets Review, Elsevier, vol. 31(C), pages 164-175.
    4. Dean Ford & Amy Wood, 2015. "El Niño and its impact on the New Zealand economy," Reserve Bank of New Zealand Analytical Notes series AN2015/07, Reserve Bank of New Zealand.
    5. Andrea Bastianin & Alessandro Lanza & Matteo Manera, 2018. "Economic impacts of El Niño southern oscillation: evidence from the Colombian coffee market," Agricultural Economics, International Association of Agricultural Economists, vol. 49(5), pages 623-633, September.
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    9. International Monetary Fund, 2016. "Colombia; Selected Issues," IMF Staff Country Reports 16/134, International Monetary Fund.
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    11. Annalisa Marini & Steve McCorriston, 2017. "Propagation of Commodity Market Shocks," Discussion Papers 1708, University of Exeter, Department of Economics.
    12. Kamiar Mohaddes & Mehdi Raissi, 2014. "Does Inflation Slow Long-Run Growth in India?," Cambridge Working Papers in Economics 1440, Faculty of Economics, University of Cambridge.
    13. Checo, Ariadne & Mejía, Mariam & Ramírez, Francisco A., 2017. "El rol de los regímenes de precipitaciones sobre la dinámica de precios y actividad del sector agropecuario de la República Dominicana durante el período 2000-2016
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    15. Allan Dizioli & Jaime Guajardo & Vladimir Klyuev & Rui Mano & Mehdi Raissi, 2016. "Spillovers from China’s Growth Slowdown and Rebalancing to the ASEAN-5 Economies," IMF Working Papers 16/170, International Monetary Fund.
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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