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

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  • Sheng, Xin
  • Gupta, Rangan
  • Cepni, Oguzhan

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.

Suggested Citation

  • Sheng, Xin & Gupta, Rangan & Cepni, Oguzhan, 2024. "Time-Varying effects of extreme weather shocks on output growth of the United States," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013473
    DOI: 10.1016/j.frl.2024.106318
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    More about this item

    Keywords

    Severe weather; Endogenous TVP-VAR; Growth; Inflation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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