Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 239. Fair Weather or Foul? The Macroeconomic Effects of El Niño. Paul Cashin, International Monetary Fund; Kamiar Mohaddes, Faculty of Economics and Girton College, University of Cambridge; Mehdi Raissi, International Monetary Fund. May 2015.

“This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Niño weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Niño shocks but also indirect effects through third-markets. We contribute to the climate-macroeconomy literatureby exploitingexogenous variation in El Niño weather events over time, and their impacton differentregions cross-sectionally, to causatively identify the effects of El Niño shockson growth, inflation, energy and non-fuel commodity prices. The results show thatthere areconsiderable heterogeneities in the responses of different countries to El Niñoshocks. WhileAustralia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries (including the United States and European region), an El Niño occurrence has a growth-enhancing effect.Furthermore, most countries in our sample experience short-run inflationary pressures as both energy and non-fuel commodity prices increase. Given these findings, macroeconomic policy formulation should take into consideration the likelihood and effects of El Niño weather episodes.”