The asymmetric effects of weather shocks on euro area inflation

Matteo Ciccarelli, Friderike Kuik and Catalina Martínez Hernández

No 2798, Working Paper Series from European Central Bank

Abstract: This paper assesses the impact of weather shocks on inflation components in the four largest euro area economies. We combine high-frequency weather data with monthly data on inflation and output growth within a set of Bayesian Vector Autore-gressions which explicitly considers the seasonal dependence of the shock. Results suggest the presence of significant country asymmetries and seasonal responses of inflation to temperature shocks, mainly via food, energy, and service prices. An increase in monthly mean temperatures has inflationary effects in summer and au-tumn, with a stronger response in warmer euro area countries. An increase in temperature variability has significant upward impacts on inflation rates over and above the impacts of changes in means. JEL Classification: Q54, E31, C32

Keywords: climate change; inflation; temperature shocks; vector autoregression (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-des, nep-eec, nep-env and nep-mac
Note: 224580
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232798

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