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Predictability of Economic Slowdowns in Advanced Countries over Eight Centuries: The Role of Climate Risks

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Jacobus Nel

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Afees A. Salisu

    (Centre for Econometrics & Applied Research, Ibadan, Nigeria; Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Qiang Ji

    (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, China)

Abstract

We analyze the predictive content of climate risks, proxied by change in global temperature anomaly and its volatility, on a dummy variable capturing periods of zero and negative growth rates of eight industrialized countries: France, Germany, Holland, Italy, Japan, Spain, the United Kingdom (UK) and the United States (US). In this regard, we apply a Probit model to longest possible historical datasets available for these countries covering 1311 till 2020, and control for inflation and interest rates, besides the persistence of the dummy variable itself. Upon considering contemporaneous and lagged (1-, 2-, 5-, and 10-year) predictive horizons, we find strong evidence that changes in global temperature anomaly and/or its stochastic volatility in particular, tend to predict slowdown or stagnation in all the eight economies under consideration across at least one of the five predictive horizons considered. Our findings have important policy implications.

Suggested Citation

  • Rangan Gupta & Jacobus Nel & Afees A. Salisu & Qiang Ji, 2022. "Predictability of Economic Slowdowns in Advanced Countries over Eight Centuries: The Role of Climate Risks," Working Papers 202237, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202237
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    Cited by:

    1. is not listed on IDEAS
    2. Jingfeng Zhao & Fan Sun, 2023. "Study on the Influence Mechanism and Adjustment Path of Climate Risk on China’s High-Quality Economic Development," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    3. Paulo M.M. Rodrigues & Dhruv Akshay Pandit & Miguel de Castro Neto, 2025. "Socio-economic sensitivity to weather extremes: A scoping review of European research," Working Papers w202527, Banco de Portugal, Economics and Research Department.
    4. Liao, Wenting & Sheng, Xin & Gupta, Rangan & Karmakar, Sayar, 2024. "Extreme weather shocks and state-level inflation of the United States," Economics Letters, Elsevier, vol. 238(C).
    5. Azizbek Tokhirov, 2024. "Income Fluctuations and Subjective Well-being: The Mediating Effects of Occupational Switching and Remittances," Journal of Happiness Studies, Springer, vol. 25(8), pages 1-37, December.
    6. Rangan Gupta & Anandamayee Majumdar & Christian Pierdzioch & Onur Polat, 2024. "Climate Risks and Real Gold Returns over 750 Years," Forecasting, MDPI, vol. 6(4), pages 1-16, October.
    7. Sheng, Xin & Gupta, Rangan & Cepni, Oguzhan, 2024. "Time-Varying effects of extreme weather shocks on output growth of the United States," Finance Research Letters, Elsevier, vol. 70(C).
    8. Zhou, Mingtao & Ma, Yong, 2025. "Physical vs. Transition climate risks: Asymmetric effects on stock return predictability," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    9. Foglia, Matteo & Plakandaras, Vasilios & Gupta, Rangan & Ji, Qiang, 2025. "Long-span multi-layer spillovers between moments of advanced equity markets: The role of climate risks," Research in International Business and Finance, Elsevier, vol. 74(C).
    10. Fava, Santino Del & Gupta, Rangan & Pierdzioch, Christian & Rognone, Lavinia, 2024. "Forecasting international financial stress: The role of climate risks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    11. Rangan Gupta & Sarah Nandnaba & Wei Jiang, 2024. "Climate Change and Growth Dynamics," Working Papers 202404, University of Pretoria, Department of Economics.

    More about this item

    Keywords

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    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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