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Assessing the macroeconomic impact of weather shocks in Colombia

Author

Listed:
  • Jose Vicente Romero

    (Banco de la Republica)

  • Sara Naranjo-Saldarriaga

    (Banco de la Republica)

  • Jonathan Alexander Munoz

    (Banco de la Republica)

Abstract

In this paper, we investigate the impact of adverse weather shocks on Colombian economic activity, with a particular emphasis on the effects on agricultural output, food and headline inflation. Existing literature and empirical evidence suggest that adverse weather shocks, such as those related to the El Nino event in 2015-2016, lead to decreases in agricultural output and increases in inflation without significantly affecting total GDP growth. To further assess this result, we evaluate the impact of ENSO fluctuations using a BVAR-X model. Based on these findings, we propose a small open economy New Keynesian model that introduces a novel channel through which relative prices (agricultural vs. non-agricultural) are affected by weather shocks, allowing us to incorporate this empirical evidence into a structural model for Colombia.

Suggested Citation

  • Jose Vicente Romero & Sara Naranjo-Saldarriaga & Jonathan Alexander Munoz, 2023. "Assessing the macroeconomic impact of weather shocks in Colombia," IHEID Working Papers 14-2023, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp14-2023
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    More about this item

    Keywords

    Weather shocks; El Nino Southern Oscillation (ENSO); Small Open Economy New Keynesian Models;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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