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Macroeconomic Effects of Climate Anomalies on Subnational Inflation in India: Heterogeneity, Monetary Policy and the Role of Inflation Targeting

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  • Kumar, Naveen

Abstract

This paper provides novel subnational evidence on the inflationary effects of climate shocks in India using monthly data for 21 states during 2013–2023 and panel local projections. Four main findings emerge. First, temperature shocks persistently raise both headline and food inflation, with no evidence of mean reversion over the medium run. Second, these effects are heterogeneous, with stronger responses in rural areas, post-monsoon months, and agriculture-dependent states. Third, the response is asymmetric: warm anomalies drive most of the inflationary effect through agricultural supply disruptions, while cold anomalies remain statistically insignificant. Fourth, flexible inflation targeting weakens, but does not eliminate, climate induced inflationary pressures.

Suggested Citation

  • Kumar, Naveen, 2026. "Macroeconomic Effects of Climate Anomalies on Subnational Inflation in India: Heterogeneity, Monetary Policy and the Role of Inflation Targeting," SocArXiv uj8s3_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:uj8s3_v1
    DOI: 10.31219/osf.io/uj8s3_v1
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