A1165
Title: Severe weather and financial (in)stability
Authors: Paolo Gelain - Federal Reserve Bank of Cleveland (United States) [presenting]
Marco Lorusso - University of Perugia & Newcastle University (Italy)
M. Marcellino - Bocconi University (Italy)
Claudia Foroni - European Central Bank (Germany)
Abstract: The effect of severe weather shocks is quantified on the US economy in an environment in which the economy can switch between periods of financial stability and financial instability, like the Great Recession. A New Keynesian dynamic stochastic general equilibrium model with banks and severe weather events is estimated. It is shown that severe weather shocks: 1) have a negative impact on real and financial US variables, sizable only in periods of financial instability, but muted effects on nominal variables; 2) are never a relevant source of business cycle fluctuations; 3) transmit mainly via a deterioration of the quality of capital.
