The macroeconomic impact of climate shocks in Uruguay
This work contributes to understanding the macro-critical effects of climate shocks in Uruguay. It assess the macroeconomic impact of the most relevant climate shocks affecting Uruguay´s economy, using the wide availability of country-specific data and background analysis. Using a macrostructural projection model customized to Uruguay (MFMOD UY) and expanded to account for climate shocks, this paper isolates the main transmission channels of droughts and floods on aggregate macroeconomic outcomes.
The authors find that climate shocks have relevant and persistent effects on aggregate variables. Droughts in particular represent large and persistent shocks to economic activity and fiscal balances. Incorporating the temporal pattern of production losses in historical droughts in Uruguay, and linkages between the L&A sector, other productive sectors, and the demand side of the economy, our modeled results imply that indirect effects magnify the direct impact of a drought on economic activity by around 50 percent in the year of occurrence.
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