Fair weather or foul? The macroeconomic effects of El Niño

Abstract

This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Niño weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Niño shocks but also indirect effects through third-markets. We contribute to the climate-macroeconomy literature by exploiting exogenous variation in El Niño weather events over time, and their impact on different regions cross-sectionally, to causatively identify the effects of El Niño shocks on growth, inflation, energy and non-fuel commodity prices. The results show that there are considerable heterogeneities in the responses of different countries to El Niño shocks. While Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries (including the United States and European region), an El Niño occurrence has a growth-enhancing effect. Furthermore, most countries in our sample experience short-run inflationary pressures as both energy and non-fuel commodity prices increase. Given these findings, macroeconomic policy formulation should take into consideration the likelihood and effects of El Niño weather episodes.

The El Niño impact on maize yields is amplified in lower income teleconnected countries

“…in LaNiña-like conditions. This finding is consistent with Cashin et al (2017), who employ a dynamic multi-country framework to find the asymmetric international macroeconomic transmission of ElNiño and LaNiña related weather shocks. Thus, not only the ENSO cycle has geographically heterogeneous effects on maize yields, but these effects are also asymmetric.…”

“…The reasons for this are heterogeneity in the ENSO-weather linkages, as well as heterogeneity in countries' responses to weather shocks (e.g. Cashin et al 2017). Weather anomalies-e.g.…”

Adjustment to negative price shocks by a commodity exporting economy: Does exchange rate flexibility resolve a balance of payments crisis?

“…Our estimating equations are reduced-form versions of Equations (4) and (10). We use the Southern Oscillation Index (SOI) to capture supply-side weather shocks (e.g., drought and El Niño), as is common in the literature (Cashin, Mohaddes and Raissi 2017). Summary statistics for each variable are shown in Table 1.…”

Separating the North and South Pacific Meridional Modes Contributions to ENSO and Tropical Decadal Variability

“…Sea surface temperatures (SSTs) in the equatorial Pacific associated with El Niño-Southern Oscillation (ENSO) exert significant control over the interannual variability of the basin climate (e.g., Alexander et al, 2002;Harrison & Larkin, 1998;McPhaden et al, 2006), which drives major societal and economic impacts (e.g., Adams et al, 1999;Berry & Okulicz-Kozaryn, 2008;Cashin et al, 2017;Fisman et al, 2016). To first order, ENSO can be thought of as a collection of modes that are amplified along the zonal equatorial plane by positive coupled feedbacks between the ocean and atmosphere (Bjerknes, 1969;Jin, 1997;Suarez & Schopf, 1988).…”