A Bayesian panel VAR to analyze the impact of climate shocks on high-income economies

“A Bayesian panel VAR to analyze the impact of climate shocks on high-income economies” [DOI], with Tamás Krisztin and Florian Huber, on analyzing climate shocks in a multi-economy framework is published in the The Annals of Applied Statistics.

In this paper, we assess the impact of climate shocks on futures markets for agricultural commodities and a set of macroeconomic quantities for multiple high-income economies. To capture relations among countries, markets, and climate shocks, this paper proposes parsimonious methods to estimate high-dimensional panel vector autoregressions. We assume that coefficients associated with domestic lagged endogenous variables arise from a Gaussian mixture model while further parsimony is achieved using suitable global-local shrinkage priors on several regions of the parameter space. Our results point towards pronounced global reactions of key macroeconomic quantities to climate shocks. Moreover, the empirical findings highlight substantial linkages between regionally located shocks and global commodity markets.