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 language | English |
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Article number | 106318 |
Journal | Finance Research Letters |
Volume | 70 |
Number of pages | 14 |
ISSN | 1544-6123 |
DOIs | |
Publication status | Published - Dec 2024 |
Bibliographical note
Published online: 16 October 2024.Keywords
- Severe weather
- Endogenous TVP-VAR
- Growth
- Inflation