Paper: dx.doi.org/10.2139/ssrn.3070154

Abstract:
We seek to identify the impact of forecast uncertainty using damages from hurricane strikes where feedback is less of a concern. We propose a theoretical framework in which uncertainty can have an economic impact when operating through beliefs about adaptation. To test this, we embed ex-post forecast uncertainty into a general model of hurricane damages and use general-to-specific model selection methods to simplify. We find that a 1 percent increase in the ex-post forecast error shock is associated with a 0.25-0.5 percent increase in damages. This implies a fall in local economic growth by 0.11-0.23 percentage points.