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Severe Weather and the Macroeconomy

Author

Listed:
  • Hee Soo Kim
  • Christian Matthes
  • Toàn Phan

Abstract

We investigate the impact of severe weather shocks on the US macroeconomy over the past 60 years. Using a nonlinear vector autoregressive model, we find robust evidence of time-varying effects. While negligible at the beginning of the sample, the impact becomes significant at the end, where an increase in the severe weather index reduces aggregate industrial production and consumption growth rates, and raises aggregate unemployment and inflation rates. The effects are persistent for up to 20 months. Our findings suggest limited adaptation to the increased severity of weather in the United States, at least at the macroeconomic level.

Suggested Citation

  • Hee Soo Kim & Christian Matthes & Toàn Phan, 2025. "Severe Weather and the Macroeconomy," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(2), pages 315-341, April.
    • Handle: RePEc:aea:aejmac:v:17:y:2025:i:2:p:315-41
    DOI: 10.1257/mac.20220329
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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