Abstract
This paper challenges the assumption that the intensifica tion of El Ni˜no and La Ni˜na generally exert upward and down ward pressures, respectively, on international food commodity prices that, in turn, affect consumer prices even in Europe. We show that the impact is weaker nowadays and, in some cases, may even change sign. Indeed, our results suggest that El Ni˜no may not have contributed to the upward inflation pressures in the euro area during the most recent inflationary episode. Con sidering domestic agricultural policies is key for the results. We construct two databases: (i) a comprehensive granular data base covering both euro-area consumer prices and European Union food commodity prices; (ii) a new database of EU prices from 1972 onward, which allows us to test the effect of these events on a larger sample. We assess the impact of these cli matic events by means of local projections techniques. Our bottom-up approach, which factors in disaggregated effects on specific food components to assess the overall effect of El Ni˜no and La Ni˜na on aggregated prices, provides a more nuanced understanding of these phenomena. Furthermore, armed with our databases, we can replicate most of the existing evidence on international food commodity prices, thereby validating our approach and indirectly testing the robustness of our main results based on the euro area.
Authors
- Fructuoso Borrallo
- Lucía Cuadro-Sáez
- Corinna Ghirelli
- Javier J. Pérez
JEL codes
- C32
- F62
- F64
- O13
- Q54