Time-Varying effects of extreme weather shocks on output growth of the United States

Xin Sheng, Rangan Gupta and Oguzhan Cepni

Finance Research Letters, 2024, vol. 70, issue C

Abstract: This study investigates the impact of a structural shock to a metric of extreme weather, identified using sign restrictions, on output growth (and inflation) in the United States (US) from 1961 to 2022, using a new class of time-varying parameter vector autoregressive (endogenous TVP-VAR) model, whereby the identified structural innovation is allowed to influence the dynamics of the coefficients in the model unlike in traditional TVP-VARs. Our results provided evidence that severe weather shocks adversely affect output growth (and inflation) over the forecast horizon of one- to twelve-quarter-ahead. More importantly, we find that the effect of extreme weather on the US macroeconomic variables is indeed time-varying, with the impacts becoming smaller in recent times, possibly due to improved adaptation to climate change.

Keywords: Severe weather; Endogenous TVP-VAR; Growth; Inflation (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 Q54 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Time-Varying Effects of Extreme Weather Shocks on Output Growth of the United States (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013473

DOI: 10.1016/j.frl.2024.106318

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