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The macroeconomic cost of temperature risk

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  • Alessandri, Piergiorgio
  • Mumtaz, Haroon

Abstract

We study the impact of temperature risk on economic growth exploiting a novel panel VAR model and data on 160 countries since the 1960s. We show that the conditional volatility of annual temperatures – a measure of ex ante temperature risk – varied significantly over time, with important implications for growth. Controlling for concomitant changes in temperature levels, an exogenous +1 °C increase in temperature risk causes on average a 0.4 per cent decline in GDP growth and a one per cent increase in the volatility of GDP.

Suggested Citation

  • Alessandri, Piergiorgio & Mumtaz, Haroon, 2025. "The macroeconomic cost of temperature risk," Journal of International Economics, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:inecon:v:158:y:2025:i:c:s002219962500114x
    DOI: 10.1016/j.jinteco.2025.104157
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    JEL classification:

    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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