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Macroeconomic impact of extreme weather events

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Listed:
  • Torsten Ehlers
  • Jon Frost
  • Carlos Madeira
  • Ilhyock Shim

Abstract

Different types of extreme weather event have different transmission channels to economic activity and inflation. An analysis of eight major economies in the Americas shows that droughts reduce economic output over the two years after they occur due to lasting effects on agriculture, forestry and electricity production. It also shows that, while droughts and wildfires temporarily increase food prices and droughts and storms raise energy prices over the following three months, in general there is no persistent impact on inflation. Considering the trade-off between growth and inflation, monetary policy may have to react differently in different circumstances: by tightening if price impacts are large and threaten to become persistent, and by loosening if events destroy physical capital and have lasting effects on economic output.

Suggested Citation

  • Torsten Ehlers & Jon Frost & Carlos Madeira & Ilhyock Shim, 2025. "Macroeconomic impact of extreme weather events," BIS Bulletins 98, Bank for International Settlements.
    • Handle: RePEc:bis:bisblt:98
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    References listed on IDEAS

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    6. Beirne, John & Dafermos, Yannis & Kriwoluzky, Alexander & Renzhi, Nuobu & Volz, Ulrich & Wittich, Jana, 2024. "Weather-related disasters and inflation in the euro area," Journal of Banking & Finance, Elsevier, vol. 169(C).
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    Cited by:

    1. Torsten Ehlers & Jon Frost & Carlos Madeira & Ilhyock Shim, 2025. "Macroeconomic impact of weather disasters: a global and sectoral analysis," BIS Working Papers 1292, Bank for International Settlements.
    2. David Nefzi & Jolien Noels & Romana Peronaci & Christian Schmieder & Ünal Seven & Ömer K Seyhun & Bruno Tissot & Elena Triebskorn, 2025. "Addressing climate change data needs: the global debate and central banks' contribution," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Addressing climate change data needs: the central banks' contribution, volume 63, Bank for International Settlements.
    3. Arango-Castillo Lenin & Mart'inez-Ram'irez Francisco, 2025. "The effects of temperature and rainfall anomalies on Mexican inflation," Papers 2507.14420, arXiv.org.

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