We kindly invite you to the BICEPS/SSE Riga research seminar! It will take place on Thursday, March 21 at 17.00 in room 611 with the presentation:
“Weather Shocks” by Gauthier Vermandel (Université Paris Dauphine), co-authored with Ewen Gallic (Université de Rennes I).
How much do weather shocks matter? The literature addresses this question in two isolated ways: either by looking at long-term effects through the prism of theoretical models, or by focusing on short-term effects using empirical analysis. We propose a framework to bring together both the short and long-term effects through the lens of an estimated DSGE model with a weather-dependent agricultural sector. The model is estimated using Bayesian methods and quarterly data for New Zealand over the sample period 1994:Q2 to 2016:Q4. In the short-run, our analysis underlines the key role of weather as a driver of business cycles over the sample period. A weather shock – as measured by a drought index – acts as a negative supply shock that causes a recession, boosts the non-agricultural sector and entails current account deficits. Taking a long term perspective, a welfare analysis reveals that weather shocks are not a free lunch: the welfare cost of weather is currently estimated at 0.40% of permanent consumption. Climate change critically enlarges the welfare cost in a non-linear fashion, peaking to 0.58%.
No prior registration for the seminar is necessary. For any questions about the seminar, or if you have a colleague that would like to be added to the distribution list, please write to Nicolas Gavoille.