Assessing the macroeconomic impact of weather shocks in Colombia

In this paper, we investigate the impact of adverse weather shocks on Colombian economic activity, with a particular emphasis on the effects on agricultural output, food and headline inflation. Existing literature and empirical evidence suggest that adverse weather shocks, such as those related to the El Niño event in 2015-2016, lead to decreases in agricultural output and increases in inflation without significantly affecting total GDP growth. To further assess this result, we evaluate the impact of ENSO fluctuations using a BVAR-X model. Based on these findings, we propose a small open economy New Keynesian model that introduces a novel channel through which relative prices (agricultural vs. non-agricultural) are affected by weather shocks, allowing us to incorporate this empirical evidence into a structural model for Colombia.