El Ni帽o has a significant impact on the world and local economies - and not always for the worst - and countries should plan ahead to mitigate its effects, according to a new Working Paper from the 探花直播 of Cambridge.
El Ni帽o has a significant impact on the world and local economies - and not always for the worst - and countries should plan ahead to mitigate its effects, according to a new Working Paper from the 探花直播 of Cambridge.
Weather effects are becoming more common and their impact is getting stronger and stronger
Kamiar Mohaddes
探花直播Paper, , by Dr Kamiar Mohaddes of Cambridge's Faculty of Economics and Paul Cashin and Mehdi Raissi of the International Monetary Fund comes as the Australian Bureau of Meteorology says there is at least a 70% chance of an El Nino weather event developing in 2014.
El Ni帽o is a band of above-average ocean surface temperatures that periodically develops off the Pacific coast of South America, and causes major climatological changes around the world. 探花直播last one was in 2009/2010.
El Ni帽o can affect commodity prices and the macroeconomy of different countries. It can constrain the supply of rain-driven agricultural commodities; reduce agricultural output, construction, and services activities; create food-price and generalised inflation; and may trigger social unrest in commodity-dependent poor countries that primarily rely on imported food.
探花直播El Ni帽o effect is found to be most severe in the Asia and Pacific region. For instance, it causes hot and dry summers in southeast Australia; increases the frequency and severity of bush fires; reduces wheat exports, and drives up global wheat prices. Moreover, El Ni帽o conditions usually coincide with a period of weak monsoon and rising temperatures in India, which adversely affects India鈥檚 agricultural sector, increases domestic food prices, and adds to inflation and inflation expectations. Furthermore, mining equipment in Indonesia relies heavily on hydropower; with deficient rain and low river currents, less nickel (which is used to strengthen steel) can be produced by the world鈥檚 top exporter of nickel. For the United States, on the other hand, El Ni帽o typically brings wet weather to California (benefiting crops such as limes, almonds and avocados), reducing fires in the west and bringing warmer winters in the Northeast, increased rainfall in the South, diminished tornadic activity in the Midwest, and a decrease in the number of hurricanes that hit the East coast.
探花直播Cambridge paper analyses the international macroeconomic transmission of El Ni帽o weather shocks in a dynamic multi-country framework, taking into account the economic interlinkages and spillovers that exist between different regions.
Overall, the paper shows that while Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Ni帽o shock, other countries may actually benefit from an El Ni帽o weather shock (either directly or indirectly through positive spillovers from major trading partners), for instance, Argentina, Canada, Mexico and the United States. Furthermore, most countries in the sample experience short-run inflationary pressures following an El Ni帽o shock, while global energy and non-fuel commodity prices increase.
探花直播researchers argue that, given these implications, macroeconomic policy formulation should take into consideration the likelihood and effects of El Ni帽o episodes. Kamiar Mohaddes says: 鈥淥ur research shows that the economic consequences of El Ni帽o differs across countries 鈥 some lose and some benefit from such a weather shock. This is important for economic planning, particularly as such weather events are happening in cycles and their impact is sometimes very large. Countries with elevated inflation like India could be particularly susceptible to such episodes.鈥
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