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Weather shocks

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manuscript_(3).pdf (898.1Kb)
Date
2020-05
Dewey
Economie de la terre et des ressources naturelles
Sujet
Agriculture; Business cycles; Climate change; Weather shocks
JEL code
Q.Q5.Q54; E.E3.E32; C.C1.C13
Journal issue
European Economic Review
Volume
124
Publication date
05-2020
Article pages
103409
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.euroecorev.2020.103409
URI
https://basepub.dauphine.fr/handle/123456789/20941
Collections
  • LEDa : Publications
Metadata
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Author
Gallic, Ewen
526949 Aix-Marseille Sciences Economiques [AMSE]
Vermandel, Gauthier
163511 Laboratoire d'Economie de Dauphine [LEDa]
Type
Article accepté pour publication ou publié
Abstract (EN)
How much do weather shocks matter? The literature addresses this question in two isolated ways: either by looking at long-term effects through the prism of calibrated theoretical models, or by focusing on both short and long terms through the lens of empirical models. We propose a framework that reconciles these two approaches by taking the theory to the data in two complementary ways. We first document the propagation mechanism of a weather shock using a Vector Auto-Regressive model on New Zealand Data. To explain the mechanism, we build and estimate a general equilibrium model with a weather-dependent agricultural sector to investigate the weather’s business cycle implications. We find that weather shocks: (i) explain about 35% of GDP and agricultural output fluctuations in New Zealand; (ii) entail a welfare cost of 0.30% of permanent consumption; (iii) critically increases the macroeconomic volatility under climate change, resulting in a higher welfare cost peaking to 0.46% in the worst case scenario of climate change.

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