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The outlook is mixed: the asymmetric effects of weather shocks on inflation

Author

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

Abstract

Climate change has implications for price stability and the work of central banks. It may increase the volatility and heterogeneity of inflation, and hotter summers may lead to more frequent and persistent upward pressures on food and services inflation. Our empirical study provides evidence for the four largest euro area economies and outlines the relationship between temperature and inflation. JEL Classification: Q54, E31, C32

Suggested Citation

  • Ciccarelli, Matteo & Kuik, Friderike & Martínez Hernández, Catalina, 2023. "The outlook is mixed: the asymmetric effects of weather shocks on inflation," Research Bulletin, European Central Bank, vol. 111.
    • Handle: RePEc:ecb:ecbrbu:2023:0111:
    Note: 224580
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    References listed on IDEAS

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    1. Auffhammer, Maximilian & Schlenker, Wolfram, 2014. "Empirical studies on agricultural impacts and adaptation," Energy Economics, Elsevier, vol. 46(C), pages 555-561.
    2. Auffhammer, Maximilian & Mansur, Erin T., 2014. "Measuring climatic impacts on energy consumption: A review of the empirical literature," Energy Economics, Elsevier, vol. 46(C), pages 522-530.
    3. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    4. Natoli, Filippo, 2022. "Temperature surprise shocks," MPRA Paper 112568, University Library of Munich, Germany.
    5. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2012. "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 66-95, July.
    6. Miles Parker, 2018. "The Impact of Disasters on Inflation," Economics of Disasters and Climate Change, Springer, vol. 2(1), pages 21-48, April.
    7. Faccia, Donata & Parker, Miles & Stracca, Livio, 2021. "Feeling the heat: extreme temperatures and price stability," Working Paper Series 2626, European Central Bank.
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    Cited by:

    1. Conefrey, Thomas & McCann, Fergal & O'Brien, Martin, 2024. "Economic policy issues in the Irish housing market," Quarterly Bulletin Articles, Central Bank of Ireland, pages 68-119, September.
    2. 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.
    3. Ciccarelli, Matteo & Darracq Pariès, Matthieu & Priftis, Romanos & Angelini, Elena & Bańbura, Marta & Bokan, Nikola & Fagan, Gabriel & Gumiel, José Emilio & Kornprobst, Antoine & Lalik, Magdalena & Mo, 2024. "ECB macroeconometric models for forecasting and policy analysis," Occasional Paper Series 344, European Central Bank.

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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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