Research

• “Heterogeneity in the Economic Impact of Temperature Shocks Across US States” (Job Market Paper)
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  This paper presents new empirical evidence on short- and medium-term heterogeneous temperature effects on real GDP growth and inflation at the US state level. The results reveal heterogeneity across states, seasons, and time horizons, with the sign of responses becoming synchronized seven quarters after temperature shocks. By examining the joint responses of output and prices, I explore whether temperature shocks resemble demand or supply shock at the state-level. The nature of shock varies by season and time horizon: cold season shock initially acts as positive demand and supply shock but transitions to negative supply (mostly in north-eastern states) and positive demand shock (mostly in southern states) as the time horizon extends, whereas warm season shock predominantly resembles negative supply shock after seven quarters (especially in southern states). Variations in state-level responses are explained by state attributes such as sectoral shares of manufacturing and services along with average temperature.
• “Severe Weather and the Macroeconomy” with Christian Matthes and Toan Phan (AEJ:Macro, forthcoming)
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  We investigate the impact of severe weather shocks on the US macroeconomy over the past sixty years. Using a nonlinear vector autoregressive model, we find robust evidence of time-varying effects. While negligible at the beginning of the sample, the impact becomes significant at the end, where an increase in the severe weather index reduces aggregate industrial production and consumption growth rates, and raises aggregate unemployment and inflation rates. The effects are persistent for up to twenty months. Our findings suggest limited adaptation to the increased severity of weather in the United States, at least at the macroeconomic level.
• “On the Macro Impact of Extreme Climate Events in Central America: A Higher Frequency Investigation”
  with Carlos Chaverri, Emilio William Fernandez Corugedo, and Pedro Juarros, IMF Working Paper No. 2022/237
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  Central America is one of the world’s most vulnerable regions to extreme climate events. The literature estimates the macroeconomic effects of climate events mainly using annual data, which might underestimate the true effects as these extreme events tend to be short-lived and generate government and family support in response. To overcome this limitation, this paper studies Central American countries’ macroeconomic impact of climatic disasters using high-frequency (monthly) data over the period 2000-2019. We identify extreme climate events by defining dummy variables related to storm and flood events reported in the EM-DAT (Emergency Events Database) and estimate country-specific VAR and panel VAR. The results suggest that a climatic disaster drops monthly economic activity in most countries in the region of around 0.5 to 1 percentage points on impact, with persistent effects on the level of GDP. We show that even as extreme climate events were relatively less severe under our sample period, quantitative effects are similar or larger than previously estimated for the region. In addition, remittances (transfers from family living abroad) increase for most countries in response to a extreme climate event, acting as a shock absorber. The results are robust to controlling for the severity of the climate events, for which we construct a monthly climate index measuring severity of weather indicators by following the spirit of the Actuaries Climate Index (ACI).
• “Are the Effects of a US Financial Shock on non-US Countries Asymmetric” Working Paper
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  In the past few decades, US financial markets have experienced a high degree of financial integration with non-US countries. I examine whether US financial shocks affect non-US economies, especially focusing on potential asymmetric effects. US financial shocks are identified from a model that allows the asymmetric effects of US financial market disturbances following a recent paper (Barnichon, Matthes, and Ziegenbein (2020)). Using Smooth Local Projection, I find that US financial shocks lead to asymmetric effects in a majority of G7 countries (Canada, Germany, France, the UK and Italy): an adverse US financial shock, i.e., tightening of financial conditions, generates a significant decline in the countries’ output and the movements are similar across the countries, while a favorable US financial shock, i.e., easing of financial conditions, generates no statistically significant responses. The asymmetry also exists in short-term interest rates and share prices indices.
• “Forecast of realized covariance matrix based on asymptotic distribution of the LU decomposition with an application for balancing minimum variance portfolio”
  with Dong Wan Shin, Applied Economics Letters (2019) (pre-PhD publication; master’s thesis)
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  We derive the asymptotic distribution for the LU decomposition, that is, the Cholesky decomposition, of realized covariance matrix. Distributional properties are combined with an existing generalized heterogeneous autoregressive (GHAR) method for forecasting realized covariance matrix, which will be referred to as a generalized HARQ (GHARQ) method. An out-of-sample forecast comparison of a real data set shows that the proposed GHARQ method outperforms other existing methods in terms of optimizing the variances of portfolios.