Time-varying effects of extreme weather shocks on output growth of the United States

Loading...
Thumbnail Image

Authors

Sheng, Xin
Gupta, Rangan
Cepni, Oguzhan

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

This study investigates the impact of a structural shock to a metric of extreme weather, identified using sign restrictions, on output growth (and inflation) in the United States (US) from 1961 to 2022, using a new class of time-varying parameter vector autoregressive (endogenous TVP-VAR) model, whereby the identified structural innovation is allowed to influence the dynamics of the coefficients in the model unlike in traditional TVP-VARs. Our results provided evidence that severe weather shocks adversely affect output growth (and inflation) over the forecast horizon of one- to twelve-quarter-ahead. More importantly, we find that the effect of extreme weather on the US macroeconomic variables is indeed time-varying, with the impacts becoming smaller in recent times, possibly due to improved adaptation to climate change.

Description

DATA AVAILABILITY : Data will be made available on request.

Keywords

Severe weather, Endogenous TVP-VAR, Growth, Inflation, United States (US), Time-varying parameter vector autoregression (TVP-VAR), Climate change, SDG-08: Decent work and economic growth, SDG-13: Climate action

Sustainable Development Goals

SDG-08:Decent work and economic growth
SDG-13:Climate action

Citation

Sheng, X., Gupta, R. & Cepni, O. 2024, 'Time-varying effects of extreme weather shocks on output growth of the United States', Finance Research Letters, vol. 70, art. 106318, pp. 1-14, doi : 10.1016/j.frl.2024.106318.