Weather, Prices and Spillovers

Annalisa Marini and Steve McCorriston
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Steve McCorriston: University of Exeter

No 1905, Discussion Papers from University of Exeter, Department of Economics

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.

Keywords: Weather; Spillovers; Export Prices; Panel Vector Autoregression (PVAR) (search for similar items in EconPapers)
JEL-codes: C3 C5 F00 Q1 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-env and nep-int
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