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

Rangan Gupta, Jacobus Nel (), Afees Salisu and Qiang Ji
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Jacobus Nel: 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

No 202237, Working Papers from University of Pretoria, Department of Economics

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.

Keywords: Growth; Climate Risks; Probit Model; Predictions (search for similar items in EconPapers)
JEL-codes: C25 C53 O40 Q54 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2022-08
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Journal Article: Predictability of economic slowdowns in advanced countries over eight centuries: The role of climate risks (2023)
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