Working Paper: NBER ID: w15596
Authors: John Landon-Lane; Hugh Rockoff; Richard H. Steckel
Abstract: The relationships among the weather, agricultural markets, and financial markets have long been of interest to economic historians, but relatively little empirical work has been done. We push this literature forward by using modern drought indexes, which are available in detail over a wide area and for long periods of time to perform a battery of tests on the relationship between these indexes and sensitive indicators of financial stress. The drought indexes were devised by climate historians from instrument records and tree rings, and because they are unfamiliar to most economic historians and economists, we briefly describe the methodology. The financial literature in the area can be traced to William Stanley Jevons, who connected his sun spot theory to rainfall patterns. The Dust bowl of the 1930s brought the climate-finance link to the attention of the general public. Here we assemble new evidence to test various hypotheses involving the impact of extreme swings in moisture on financial stress.
Keywords: No keywords provided
JEL Codes: E3; N0; N11; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Drought severity (Q54) | Bank returns (G21) |
| Drought severity (Q54) | Agricultural income (Q19) |
| Agricultural income (Q19) | Loan repayments (G51) |
| Loan repayments (G51) | Bank profitability (G21) |
| Drought severity (Q54) | Farm income (Q12) |
| Farm income (Q12) | Farm foreclosures (Q15) |
| Drought severity (Q54) | Bank stress (G21) |
| Drought severity (Q54) | Financial crises (G01) |