Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331540 
Year of Publication: 
2025
Series/Report no.: 
IES Working Paper No. 21/2025
Publisher: 
Charles University in Prague, Institute of Economic Studies (IES), Prague
Abstract: 
We examine how the macroeconomic effects of temperature shocks have evolved in the United States since 1947. Using a time-varying parameter vector autoregression with stochastic volatility estimated on monthly data, we document a structural shift in the propagation of temperature shocks. Before the 1980s, higher temperatures induced demand-like dynamics-output and prices rose together. Since the 1980s, responses have become supply-like: real activity declines persistently while prices rise on impact and turn negative thereafter. A sectoral decomposition confirms shifts in agriculture, manufacturing, and services, with the services sector the primary driver of recent GDP dynamics. Our results reveal that food, services, and energy prices drive most of the aggregate price adjustments, while core prices remain muted. Temperature shocks now explain a rising share of medium-run output and price variation, and greater ex-ante temperature uncertainty depresses equity valuations on impact. Overall, temperature shocks have become increasingly contractionary and inflationary in nature.
Subjects: 
Temperature shocks
Time-varying VAR
US economy
JEL: 
C22
E30
E32
Q54
Document Type: 
Working Paper

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