Heat Shocks and Agricultural Loan Repayment

Jerzy Jaromczyk, Jennifer Ifft and Ariel Ortiz-Bobea

No 404344, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: Although the large and widespread impacts that climate change will have on the economy have been extensively documented, the factors determining the extent of these damages to the financial system are less understood. In this paper, we exploit the exogenous variation in heat shocks to estimate their effect on loan repayment for a sector that is both highly heat-sensitive and reliant on credit—agriculture. We find no evidence that one-year heat shocks lead to a change in delinquency rates, while persistent heat shocks lasting two or three years have a statistically significant, but economically small, effect, with a uniform 1◦C temperature increase changing delinquency rates by approximately 2.9–3.4% of their within-sample standard deviation. We validate these results by systematically ruling out aggregation bias, data-construction errors, and attenuation bias as explanations for our findings. These results suggest the important role that robust buffering mechanisms and lender forbearance play in minimizing the transmission of climate-related physical risk to the financial sector.

Keywords: Agricultural Finance; Farm Management (search for similar items in EconPapers)
Pages: 39
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404344

DOI: 10.22004/ag.econ.404344

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