IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i17p13108-d1229744.html
   My bibliography  Save this article

Impact of Climate Change on Inflation in 26 Selected Countries

Author

Listed:
  • Cunpu Li

    (School of Economics and Finance, Xi’an International Studies University, Xi’an 710128, China)

  • Xuetong Zhang

    (School of Economics and Finance, Xi’an International Studies University, Xi’an 710128, China)

  • Jing He

    (Management School, Xi’an University of Architecture and Technology, Xi’an 710055, China)

Abstract

In the era of persistent globalization, climate governance has emerged as a prominent concern within both the theoretical community and government departments of diverse nations. Of particular interest in academic research is the adverse effect of climate shocks on the global economy. This paper employs average temperature as a surrogate indicator for climate shocks and examines the influence of temperature fluctuations on inflation levels using a balanced panel dataset from 1995 to 2021. The findings indicate a positive association between temperature change and inflation within the country, which remains consistent even after subjecting the analysis to multiple robustness tests. Furthermore, accounting for heterogeneity reveals variations in the magnitude of response of inflation levels to temperature fluctuations. Regarding the analysis of underlying mechanisms, this study underscores the significance of energy demand as a pivotal pathway influencing inflationary pressures at the national level. Lastly, by incorporating GDP per capita as a threshold, this research reveals a nonlinear relationship between temperature change and inflation levels.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:17:p:13108-:d:1229744
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/17/13108/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/17/13108/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yusifzada, Tural, 2022. "Response of Inflation to the Climate Stress: Evidence from Azerbaijan," MPRA Paper 116522, University Library of Munich, Germany, revised 20 Sep 2022.
    2. Andréas Heinen & Jeetendra Khadan & Eric Strobl, 2019. "The Price Impact of Extreme Weather in Developing Countries," The Economic Journal, Royal Economic Society, vol. 129(619), pages 1327-1342.
    3. Fratzscher, Marcel & Grosse-Steffen, Christoph & Rieth, Malte, 2020. "Inflation targeting as a shock absorber," Journal of International Economics, Elsevier, vol. 123(C).
    4. Riccardo Colacito & Bridget Hoffmann & Toan Phan, 2019. "Temperature and Growth: A Panel Analysis of the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 313-368, March.
    5. Corey Lesk & Pedram Rowhani & Navin Ramankutty, 2016. "Influence of extreme weather disasters on global crop production," Nature, Nature, vol. 529(7584), pages 84-87, January.
    6. Atalla, Tarek & Gualdi, Silvio & Lanza, Alessandro, 2018. "A global degree days database for energy-related applications," Energy, Elsevier, vol. 143(C), pages 1048-1055.
    7. William Nordhaus, 2018. "Projections and Uncertainties about Climate Change in an Era of Minimal Climate Policies," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 333-360, August.
    8. Strobl, Eric, 2012. "The economic growth impact of natural disasters in developing countries: Evidence from hurricane strikes in the Central American and Caribbean regions," Journal of Development Economics, Elsevier, vol. 97(1), pages 130-141.
    9. Cashin, Paul & Mohaddes, Kamiar & Raissi, Mehdi, 2017. "Fair weather or foul? The macroeconomic effects of El Niño," Journal of International Economics, Elsevier, vol. 106(C), pages 37-54.
    10. Pugatch, Todd, 2019. "Tropical storms and mortality under climate change," World Development, Elsevier, vol. 117(C), pages 172-182.
    11. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    12. Olivier R de Bandt & Luc Jacolin & Thibault Lemaire, 2021. "Climate Change in Developing Countries: Global Warming Effects, Transmission Channels and Adaptation Policies," Working Papers hal-03948704, HAL.
    13. Fikru, Mahelet G. & Gautier, Luis, 2015. "The impact of weather variation on energy consumption in residential houses," Applied Energy, Elsevier, vol. 144(C), pages 19-30.
    14. Matteo Lanzafame, 2014. "Temperature, rainfall and economic growth in Africa," Empirical Economics, Springer, vol. 46(1), pages 1-18, February.
    15. Jeroen Klomp & John Sseruyange, 2021. "Earthquakes and Economic Outcomes: Does Central Bank Independence Matter?," Open Economies Review, Springer, vol. 32(2), pages 335-359, April.
    16. K. Mukherjee & B. Ouattara, 2021. "Climate and monetary policy: do temperature shocks lead to inflationary pressures?," Climatic Change, Springer, vol. 167(3), pages 1-21, August.
    17. Kotz, Maximilian & Kuik, Friderike & Lis, Eliza & Nickel, Christiane, 2023. "The impact of global warming on inflation: averages, seasonality and extremes," Working Paper Series 2821, European Central Bank.
    18. Ravi Bansal & Marcelo Ochoa, 2011. "Temperature, Aggregate Risk, and Expected Returns," NBER Working Papers 17575, National Bureau of Economic Research, Inc.
    19. Serhan Cevik, João Tovar Jalles, 2023. "Eye of the Storm: The Impact of Climate Shocks on Inflation and Growth," Working Papers REM 2023/0276, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    20. 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.
    21. Natoli, Filippo, 2022. "Temperature surprise shocks," MPRA Paper 112568, University Library of Munich, Germany.
    22. Alain N. Kabundi & Mr. Montfort Mlachila & Jiaxiong Yao, 2022. "How Persistent are Climate-Related Price Shocks? Implications for Monetary Policy," IMF Working Papers 2022/207, International Monetary Fund.
    23. Maureen Teresa Odongo & Roseline Nyakerario Misati & Anne Wangari Kamau & Kethi Ngoka Kisingu, 2022. "Climate Change and Inflation in Eastern and Southern Africa," Sustainability, MDPI, vol. 14(22), pages 1-17, November.
    24. Mark Edem Kunawotor & Godfred Alufar Bokpin & Patrick O. Asuming & Kofi A. Amoateng, 2022. "The Impacts of Extreme Weather Events on Inflation and the Implications for Monetary Policy in Africa," Progress in Development Studies, , vol. 22(2), pages 130-148, April.
    25. Mr. Serhan Cevik & João Tovar Jalles, 2023. "Eye of the Storm: The Impact of Climate Shocks on Inflation and Growth," IMF Working Papers 2023/087, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tobias Kranz & Hamza Bennani & Matthias Neuenkirch, 2024. "Monetary Policy and Climate Change: Challenges and the Role of Major Central Banks," Research Papers in Economics 2024-01, University of Trier, Department of Economics.
    2. John Beirne & Yannis Dafermos & Alexander Kriwoluzky & Nuobu Renzhi & Ulrich Volz & Jana Wittich, 2021. "The Effects of Natural Disasters on Price Stability in the Euro Area," Discussion Papers of DIW Berlin 1981, DIW Berlin, German Institute for Economic Research.
    3. Beirne, John & Dafermos, Yannis & Kriwoluzky, Alexander & Renzhi, Nuobu & Volz, Ulrich & Wittich, Jana, 2022. "Natural Disasters and Inflation in the Euro Area," VfS Annual Conference 2022 (Basel): Big Data in Economics 264132, Verein für Socialpolitik / German Economic Association.
    4. Faccia, Donata & Parker, Miles & Stracca, Livio, 2021. "Feeling the heat: extreme temperatures and price stability," Working Paper Series 2626, European Central Bank.
    5. K. Mukherjee & B. Ouattara, 2021. "Climate and monetary policy: do temperature shocks lead to inflationary pressures?," Climatic Change, Springer, vol. 167(3), pages 1-21, August.
    6. Joaquín Bernal-Ramírez & Jair Ojeda-Joya & Camila Agudelo-Rivera & Felipe Clavijo-Ramírez & Carolina Durana-Ángel & Clark Granger-Castaño & Daniel Osorio-Rodríguez & Daniel Parra-Amado & José Pulido &, 2022. "Impacto macroeconómico del cambio climático en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 102, pages 1-62, July.
    7. Erwan Gautier & Christoph Grosse Steffen & Magali Marx & Paul Vertier, 2023. "Decomposing the Inflation Response to Weather-Related Disasters," Working papers 935, Banque de France.
    8. Filippo Natoli, 2023. "The macroeconomic effects of temperature surprise shocks," Temi di discussione (Economic working papers) 1407, Bank of Italy, Economic Research and International Relations Area.
    9. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    10. 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.
    11. Chaitat Jirophat & Pym Manopimoke & Suparit Suwanik, 2022. "The Macroeconomic Effects of Climate Shocks in Thailand," PIER Discussion Papers 188, Puey Ungphakorn Institute for Economic Research.
    12. Alain N. Kabundi & Mr. Montfort Mlachila & Jiaxiong Yao, 2022. "How Persistent are Climate-Related Price Shocks? Implications for Monetary Policy," IMF Working Papers 2022/207, International Monetary Fund.
    13. Natoli, Filippo, 2022. "Temperature surprise shocks," MPRA Paper 112568, University Library of Munich, Germany.
    14. Kahn, Matthew E. & Mohaddes, Kamiar & Ng, Ryan N.C. & Pesaran, M. Hashem & Raissi, Mehdi & Yang, Jui-Chung, 2021. "Long-term macroeconomic effects of climate change: A cross-country analysis," Energy Economics, Elsevier, vol. 104(C).
    15. Sven Kunze, 2021. "Unraveling the Effects of Tropical Cyclones on Economic Sectors Worldwide: Direct and Indirect Impacts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(4), pages 545-569, April.
    16. Donadelli, M. & Jüppner, M. & Paradiso, A. & Ghisletti, M., 2020. "Tornado activity, house prices, and stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    17. Letta, Marco & Montalbano, Pierluigi & Tol, Richard S.J., 2018. "Temperature shocks, short-term growth and poverty thresholds: Evidence from rural Tanzania," World Development, Elsevier, vol. 112(C), pages 13-32.
    18. Alessandro Cantelmo, 2022. "Rare Disasters, the Natural Interest Rate and Monetary Policy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 473-496, June.
    19. David Barker, 2024. "Global Non-Linear Effect of Temperature on Economic Production: Comment on Burke, Hsiang, and Miguel," Econ Journal Watch, Econ Journal Watch, vol. 21(1), pages 1-35–68, March.
    20. Nusrate Aziz & Belayet Hossain & Laura Lamb, 2022. "Does green policy pay dividends?," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(2), pages 147-172, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:17:p:13108-:d:1229744. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.