Weather Shocks

Ewen Gallic and Gauthier Vermandel

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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 calibrated theoretical models, or by focusing on both short and long terms through the lens of empirical models. We propose a framework that reconciles these two approaches by taking the theory to the data in two complementary ways. We first document the propagation mechanism of a weather shock using a Vector Auto-Regressive model on New Zealand Data. To explain the mechanism, we build and estimate a general equilibrium model with a weather-dependent agricultural sector to investigate the weather's business cycle implications. We find that weather shocks: (i) explain about 35% of GDP and agricultural output fluctuations in New Zealand; (ii) entail a welfare cost of 0.30% of permanent consumption; (iii) critically increases the macroeconomic volatility under climate change, resulting in a higher welfare cost peaking to 0.46% in the worst case scenario of climate change.

Keywords: Business Cycles; Agriculture; Weather Shocks; Climate Change (search for similar items in EconPapers)
Date: 2020-05-01
New Economics Papers: this item is included in nep-agr, nep-dge, nep-env and nep-mac
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02498669v1
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Citations: View citations in EconPapers (7)

Published in European Economic Review, 2020, 124, pp.103409. ⟨10.1016/j.euroecorev.2020.103409⟩

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Journal Article: Weather shocks (2020)
Working Paper: Weather Shocks (2019)
Working Paper: Weather Shocks (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02498669

DOI: 10.1016/j.euroecorev.2020.103409

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