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The asymmetric effects of weather shocks on euro area inflation

Author

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  • Ciccarelli, Matteo
  • Kuik, Friderike
  • Martínez Hernández, Catalina

Abstract

This paper assesses the impact of weather shocks on inflation components in the four largest euro area economies. We combine high-frequency weather data with monthly data on inflation and output growth within a set of Bayesian Vector Autore-gressions which explicitly considers the seasonal dependence of the shock. Results suggest the presence of significant country asymmetries and seasonal responses of inflation to temperature shocks, mainly via food, energy, and service prices. An increase in monthly mean temperatures has inflationary effects in summer and au-tumn, with a stronger response in warmer euro area countries. An increase in temperature variability has significant upward impacts on inflation rates over and above the impacts of changes in means. JEL Classification: Q54, E31, C32

Suggested Citation

  • Ciccarelli, Matteo & Kuik, Friderike & Martínez Hernández, Catalina, 2023. "The asymmetric effects of weather shocks on euro area inflation," Working Paper Series 2798, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20232798
    Note: 224580
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    References listed on IDEAS

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    Cited by:

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    3. Erwan Gautier & Christoph Grosse Steffen & Magali Marx & Paul Vertier, 2023. "Decomposing the Inflation Response to Weather-Related Disasters," Working papers 935, Banque de France.
    4. Yannis Dafermos, 2024. "The climate crisis meets the ECB: tinkering around the edges or paradigm shift?," Working Papers 264, Department of Economics, SOAS University of London, UK.
    5. Cunpu Li & Xuetong Zhang & Jing He, 2023. "Impact of Climate Change on Inflation in 26 Selected Countries," Sustainability, MDPI, vol. 15(17), pages 1-22, August.
    6. Meltem Chadwick & Hulya Saygili, 2024. "Temperature, precipitation and food price inflation: Evidence from a panel of countries," Working Papers wp55, South East Asian Central Banks (SEACEN) Research and Training Centre.
    7. Ciccarelli, Matteo & Marotta, Fulvia, 2024. "Demand or Supply? An empirical exploration of the effects of climate change on the macroeconomy," Energy Economics, Elsevier, vol. 129(C).

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    More about this item

    Keywords

    climate change; inflation; temperature shocks; vector autoregression;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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