U.S.E. Seminar with Gauthier Vermandel (Paris-Dauphine): Weather Shocks, Climate Change and Business Cycles.
"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. In the short-run, our analysis underlines the key role of weather as a driver of business cycles over the sample period."
Weather shocks enlarge the welfare cost
"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 the weather is currently estimated at 0.40% of permanent consumption. Climate change - measured by an increasing variance of weather shocks - dramatically
enlarges the welfare cost in a non-linear fashion, peaking to 0.58% in the worst experiment, Climate change also acts as an accelerator of the volatility of key macroeconomic variables, such as agricultural output, total output and the
real exchange rate."