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

Xin Sheng; Rangan Gupta; Oguzhan Cepni

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

Xin Sheng
, Rangan Gupta
, Oguzhan Cepni

Department of Economics

Anglia Ruskin University
University of Pretoria

Research output: Working paper › Research

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 time-varying parameter vector autoregressive (TVP-VAR) model. Our results show 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
Place of Publication	Pretoria
Publisher	University of Pretoria
Number of pages	15
Publication status	Published - Aug 2023

Series	Working Paper Series / Department of Economics. University of Pretoria
Number	2023-24

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 13 Climate Action

Keywords

Severe weather
Endogenous TVP-VAR
Growth
Inflation

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Cite this

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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 time-varying parameter vector autoregressive (TVP-VAR) model. Our results show 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.",

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AB - 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 time-varying parameter vector autoregressive (TVP-VAR) model. Our results show 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.

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KW - Inflation

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