Weather Shocks

Ewen Gallic and Gauthier Vermandel

Working Papers from HAL

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 theoretical models, or by focusing on short-term effects using empirical analysis. We propose a framework to bring together both the short and long-term effects through the lens of an estimated DSGE model with a weather-dependent agricultural sector. The model is estimated using Bayesian methods and quarterly data for New Zealand using the weather as an observable variable. In the short-run, our analysis underlines the key role of weather as a driver of business cycles over the sample period. An adverse weather shock generates a recession, boosts the non-agricultural sector and entails a domestic currency depreciation. Taking a long-term perspective, a welfare analysis reveals that weather shocks are not a free lunch: the welfare cost of weather is currently estimated at 0.19% of permanent consumption. Climate change critically increases the variability of key macroeconomic variables (such as GDP, agricultural output or the real exchange rate) resulting in a higher welfare cost peaking to 0.29% in the worst case scenario.

Keywords: agriculture; business cycles; climate change; weather shocks (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-dge, nep-env and nep-mac
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02127846v1
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Weather shocks (2020)
Working Paper: Weather Shocks (2020)
Working Paper: Weather Shocks (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-02127846

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