Time-varying Effects of Extreme Weather Shocks on Output Growth of the United States

Xin Sheng, Rangan Gupta*, Oguzhan Cepni

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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.
Original languageEnglish
Article number106318
JournalFinance Research Letters
Volume70
Number of pages14
ISSN1544-6123
DOIs
Publication statusPublished - Dec 2024

Bibliographical note

Published online: 16 October 2024.

Keywords

  • Severe weather
  • Endogenous TVP-VAR
  • Growth
  • Inflation

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