Heat, cold and the macroeconomy: temperature shocks are not all alike

Hot temperatures are known to impair economic growth, but extreme cold also poses significant macroeconomic risks. Yet, despite the rising temperature volatility in a warming climate, the aggregate effects of cold shocks remain comparatively understudied, particularly regarding their transmission through the business cycle and their implications for inflation and monetary policy. I construct monthly unexpected heat and cold shocks for the United States using daily county-level temperatures. I find that heat shocks have negligible aggregate effects, whereas cold shocks significantly reduce industrial production, increase uncertainty, and are deflationary, triggering an endogenous monetary policy response. I show that identifying temperature surprises crucially depends on how expectations, extremes, and aggregation are defined. As climate instability increases the probability of cold air outbreaks in the US, adaptation policies should take account of unexpected cold spells, highlighting a dimension of climate risk that has received limited attention so far.