Temperature and the U.S. Economy: From Demand to Supply-Side Effects?

Marta Garcia-Rodriguez (), Roman Horvath and Clemente Pinilla-Torremocha ()
Additional contact information
Marta Garcia-Rodriguez: Bank of Spain
Clemente Pinilla-Torremocha: Bank of England and European Research University-ERC-London

No 2025/21, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: We examine how the macroeconomic effects of temperature shocks have evolved in the United States since 1947. Using a time-varying parameter vector autoregression with stochastic volatility estimated on monthly data, we document a structural shift in the propagation of temperature shocks. Before the 1980s, higher temperatures induced demand-like dynamics—output and prices rose together. Since the 1980s, responses have become supply-like: real activity declines persistently while prices rise on impact and turn negative thereafter. A sectoral decomposition confirms shifts in agriculture, manufacturing, and services, with the services sector the primary driver of recent GDP dynamics. Our results reveal that food, services, and energy prices drive most of the aggregate price adjustments, while core prices remain muted. Temperature shocks now explain a rising share of medium-run output and price variation, and greater ex-ante temperature uncertainty depresses equity valuations on impact. Overall, temperature shocks have become increasingly contractionary and inflationary in nature.

Keywords: Temperature shocks; Time-varying VAR; US economy (search for similar items in EconPapers)
JEL-codes: C22 E30 E32 Q54 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2025-10, Revised 2025-10
New Economics Papers: this item is included in nep-env, nep-ets and nep-inv
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ies.fsv.cuni.cz/en/temperature-and-us-economy-demand-supply-side-effects (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2025_21

Access Statistics for this paper

More papers in Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().