Frequency of Shocks, Resilience and Shock Persistence: Evidence from Natural Disasters

Bashar, Omar and Mallick, Debdulal (2021): Frequency of Shocks, Resilience and Shock Persistence: Evidence from Natural Disasters.

Abstract

Volatility persistence has important welfare consequences. In this paper, we investigate the effect on volatility persistence of the frequency of shocks for which we consider exogenous natural disasters. We find that, on average, volatility persistence is about 5 percent lower in countries that have experienced one more natural disasters per year. However, there is a non-linearity in that volatility persistence initially decreases and then increases with the frequency of natural disasters. The results are explained in terms of disaster resilience—countries that experience natural disasters frequently develop resilience that shields the economy from the destruction of natural disasters and/or expedites economic recovery. Among the factors that potentially create resilience, we find significance of its structural component.

• Item Type: MPRA Paper
• Language: English
• Keywords: Shock; Natural disaster; Resilience; Volatility persistence
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I38 - Government Policy ; Provision and Effects of Welfare Programs; 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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