Weather, Credit, and Economic Fluctuations: Evidence from China

Chen, Zhenzhu and Li, Li and Tang, Yao (2023): Weather, Credit, and Economic Fluctuations: Evidence from China.

Abstract

We constructed an Actuary Climate Index to measure extreme weather risks in China. Analyzing macroeconomic data through a structural vector auto-regression model suggests that a negative weather shock leads to persistently low GDP and credit obtained by non-financial firms. In our regression analysis of a panel of firms listed in China, the negative effects of weather shocks on firm level loans were statistically and practically significant. Further analysis suggests that credit risk and expectations are two important impact channels. A high existing credit risk or low confidence among firm managers, amplifies the negative effects of extreme weather on loans.

• Item Type: MPRA Paper
• Language: English
• Keywords: extreme weather shocks, credit risk, expectations, Chinese economy
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

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