The Impact of Climatic Disasters on Output and Prices: A Panel VAR-X Approach

Sammanfattning: This paper sets out to study the short-term e ffects of climatic disasters on two macroeconomic variables: output and prices. The study makes use of a panel vector-autoregression model in the presence of endogenous variables and exogenous shocks (VAR-X), and applies it to a 1960--2017 cross-country panel. The findings suggest that the average mean response of GDP and CPI growth vary depending on the type of disaster shock, the severity of the disaster, and the level of country development. Overall, low and middle-income countries are more sensitive to climatic disasters, with moderate floods having a small but positive impact on GDP growth, severe storms having a negative impact on GDP growth, and droughts having a large and positive impact on CPI growth. When using an alternative, cost-based outcome measure of climatic disasters, low and middle-income countries also experience a negative impact on GDP growth and a positive impact on CPI growth following droughts. High income countries, on the other hand, are less impacted by climatic disasters. The study highlights large disparities across country groups, and moreover, suggests that emerging economies|which in many cases already struggle with economic and environmental challenges|are more exposed to negative supply shocks following droughts.