# 13-007/III (2013-01-08)

Lan-Fen Chu, National Science and Technology Center for Disaster, Taiwan; Michael McAleer, Erasmus University Rotterdam, Kyoto University, Complutense University of Madrid; Chi-Chung Chen, National Chung Hsing University, Taiwan
El Niños Southern Oscillations (ENSO), Greenhouse Gas Emissions, Global Economy, Southern Oscillation Index (SOI), Sea Surface Temperature (SST), Volatility.
JEL codes:
Q51, Q52, Q53, Q54

This paper analyzes two indexes in order to capture the volatility inherent in El Niños Southern Oscillations (ENSO), develops the relationship between the strength of ENSO and greenhouse gas emissions, which increase as the economy grows, with carbon dioxide being the major greenhouse gas, and examines how these gases affect the frequency and strength of El Niño on the global economy. The empirical results show that both the ARMA(1,1)-GARCH(1,1) and ARMA(3,2)-GJR(1,1) models are suitable for modelling ENSO volatility accurately, and that 1998 is a turning point, which indicates that the ENSO strength has increased since 1998. Moreover, the increasing ENSO strength is due to the increase in greenhouse gas emissions. The ENSO strengths for Sea Surface Temperature (SST) are predicted for the year 2030 to increase from 29.62% to 81.5% if global CO2 emissions increase by 40% to 110%, respectively. This indicates that we will be faced with even stronger El Nino or La Nina effects in the future if global greenhouse gas emissions continue to increase unabated.