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Weathering the Storm: Financial Shocks and Inflationary Pressures from Climate Extremes

Author

Listed:
  • Ravipa Rojasavachai
  • Florent Rouxelin
  • Li Yang
  • Yumeng Gao

Abstract

This article examines the financial consequences of extreme weather using data from the Australian Actuaries Climate Index (AACI), which tracks temperature, rainfall, drought, wind, and sea level. Employing both a simple average of AACI components and principal component analysis, we use a vector autoregression model to identify financial market disruptions, including inflationary pressures from food and energy prices, declines in interest rates, and rising unemployment. Energy consumption spikes highlight asset allocation challenges, while core Consumer Price Index experiences significant volatility. These findings emphasize the role of extreme weather shocks in shaping inflation dynamics and broader financial stability.

Suggested Citation

  • Ravipa Rojasavachai & Florent Rouxelin & Li Yang & Yumeng Gao, 2025. "Weathering the Storm: Financial Shocks and Inflationary Pressures from Climate Extremes," Land Economics, University of Wisconsin Press, vol. 101(4), pages 521-549.
    • Handle: RePEc:uwp:landec:v:101:y:2025:i:4:p:521-549
    Note: DOI: https://doi.org/10.3368/le.101.4.060723-0051R
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    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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