Mr. Paul Cashin, Mr. Kamiar Mohaddes, and Mr. Mehdi Raissi
This paper employs a dynamic multi-country framework to analyze the international
macroeconomic transmission of El Niño weather shocks. This framework comprises 21
country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for
not only direct exposures of countries to El Niño shocks but also indirect effects through thirdmarkets.
We contribute to the climate-macroeconomy literature by exploiting exogenous
variation in El Niño weather events over time, and their impact on different regions crosssectionally,
to causatively identify the effects of El Niño shocks on growth, inflation, energy
and non-fuel commodity prices. The results show that there are considerable heterogeneities in
the responses of different countries to El Niño shocks. While Australia, Chile, Indonesia, India,
Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to
an El Niño shock, for other countries (including the United States and European region), an El
Niño occurrence has a growth-enhancing effect. Furthermore, most countries in our sample
experience short-run inflationary pressures as both energy and non-fuel commodity prices
increase. Given these findings, macroeconomic policy formulation should take into
consideration the likelihood and effects of El Niño weather episodes.