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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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    Citations

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    Cited by:

    1. Omer Majeed & Günther G. Schulze, 2025. "FDI and the Geography of Terror," Discussion Paper Series 53 JEL Classification: F2, Department of International Economic Policy, University of Freiburg, revised Dec 2025.
    2. Kim, Dukpa & Kim, Yun Jung, 2025. "Macroeconomic impacts of climate change: A semi-structural analysis of unexpected weather conditions in Korea," Economic Modelling, Elsevier, vol. 151(C).
    3. Martin Bruns & Helmut Lütkepohl, 2026. "Review of Proxy Vector Autoregressive Analysis," Discussion Papers of DIW Berlin 2155, DIW Berlin, German Institute for Economic Research.
    4. Mehmet Balcilar & Kenny Kutu & Sonali Das & Rangan Gupta, 2025. "Predicting the Conditional Distributions of Inflation and Inflation Uncertainty in South Africa: The Role of Climate Risks," Working Papers 202529, University of Pretoria, Department of Economics.
    5. Chiara Casoli & Matteo Manera & Luca Pedini & Daniele Valenti, 2025. "“It’s not the heat, it’s the humidity!” New Climate Indices for Europe with a Multilevel Factor Model," Working Papers 2025.23, Fondazione Eni Enrico Mattei.
    6. Giovanni Angelini & Maria Elena Bontempi & Luca De Angelis & Paolo Neri & Marco Maria Sorge, 2025. "Shocking concerns: public perception about climate change and the macroeconomy," Papers 2505.04669, arXiv.org.
    7. Ben-Nasr, Hamdi & Masry, Shadin & Masum, Abdullah-Al & Ouni, Zeineb, 2025. "Carbon risk and trade credit," International Review of Economics & Finance, Elsevier, vol. 103(C).
    8. Afees A. Salisu & Ahamuefula E. Ogbonna & Rangan Gupta & Yunhan Zhang, 2025. "Climate Policy Uncertainty and the Forecastability of Inflation," Working Papers 202525, University of Pretoria, Department of Economics.
    9. Naveen Kumar & Dibyendu Maiti, 2025. "Distributional impacts of global warming on wealth inequality: evidence from global panel of regions," Empirical Economics, Springer, vol. 69(6), pages 3889-3933, December.
    10. Claudia Foroni Paolo Gelain Marco Lorusso Massimiliano Marcellino, 2026. "Severe Weather and Financial (In)stability," BAFFI CAREFIN Working Papers 26266, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    11. Lanne, Markku & Virolainen, Savi, 2025. "A Gaussian smooth transition vector autoregressive model: An application to the macroeconomic effects of severe weather shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 178(C).
    12. Shaibu Mellon Bedi & Pia Nilsson & Helena Hansson, 2025. "The impact of drought on farm economic performance: evidence from Sweden," Empirical Economics, Springer, vol. 69(4), pages 2311-2337, October.
    13. Abeeb Olaniran & Xin Sheng & Oguzhan Cepni & Rangan Gupta, 2025. "Climate Shocks and Unemployment Claims," Working Papers 202536, University of Pretoria, Department of Economics.
    14. Lee, Seunghee, 2025. "Effects of weather conditions on prices in Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 47(4), pages 131-158.

    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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