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The Economic Costs of Temperature Uncertainty

Author

Listed:
  • Luca Bettarelli
  • Davide Furceri
  • Michael Ganslmeier
  • Marc Schiffbauer

Abstract

Beyond its environmental damage, climate change is predicted to produce significant economic costs. Combining novel high-frequency geospatial temperature data from satellites with measures of economic activity for the universe of US listed firms, this article examines a potentially important channel through which global warming can lead to economic costs: temperature uncertainty. The results show that temperature uncertainty—by increasing power outages, reducing labor productivity, and increasing the degree of exposure of firms to environmental and non-political risks, as well as economic uncertainty at the firm-level—persistently reduce firms’ investment and sales. This effect varies across firms, with those characterized by tighter financial constraints being disproportionally more affected.

Suggested Citation

  • Luca Bettarelli & Davide Furceri & Michael Ganslmeier & Marc Schiffbauer, 2025. "The Economic Costs of Temperature Uncertainty," IMF Working Papers 2025/026, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2025/026
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