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On the Macro Impact of Extreme Climate Events in Central America: A Higher Frequency Investigation
Author:
Hee Soo Kim
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Carlos Chaverri
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Emilio William Fernandez Corugedo
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Pedro Juarros
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 237
Language:
English
Publication Date:
02 Dec 2022
DOI:
https://doi.org/10.5089/9798400226021.001
ISBN:
9798400226021
ISSN:
1018-5941
Pages:
38
Keywords:
Climatic disasters; high frequency; CAPDR; VAR; climate event; macro impact; panel VAR; frequency investigation; climate index; Natural disasters; Remittances; Climate change; Vector autoregression; Central America
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Central America is one of the world’s most vulnerable regions to extreme climate events. The literature estimates the macroeconomic effects of climate events mainly using annual data, which might underestimate the true effects as these extreme events tend to be short-lived and generate government and family support in response. To overcome this limitation, this paper studies Central American countries’ macroeconomic impact of climatic disasters using high-frequency (monthly) data over the period 2000-2019. We identify extreme climate events by defining dummy variables related to storm and flood events reported in the EM-DAT (Emergency Events Database) and estimate country-specific VAR and panel VAR. The results suggest that a climatic disaster drops monthly economic activity in most countries in the region of around 0.5 to 1 percentage points on impact, with persistent effects on the level of GDP. We show that even as extreme climate events were relatively less severe under our sample period, quantitative effects are similar or larger than previously estimated for the region. In addition, remittances (transfers from family living abroad) increase for most countries in response to a extreme climate event, acting as a shock absorber. The results are robust to controlling for the severity of the climate events, for which we construct a monthly climate index measuring severity of weather indicators by following the spirit of the Actuaries Climate Index (ACI).
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 237