Macroeconomic impacts of climate change: A semi-structural analysis of unexpected weather conditions in Korea

Dukpa Kim and Yun Jung Kim

Economic Modelling, 2025, vol. 151, issue C

Abstract: This study investigates how unexpected weather conditions influence macroeconomic activity, addressing the need to better understand the structural nature of weather-induced economic shocks. While prior research has relied on reduced-form regressions or structural models, the underlying mechanisms often remain ambiguous or model-dependent. We propose a semi-structural approach that combines a structural vector autoregression model of the Korean economy with reduced-form regressions linking identified structural shocks to unexpected weather conditions, measured as deviations from historical norms. Our analysis reveals that cold events – heating degree days, freezing degree days, and frost – are associated with adverse supply shocks, while storms and dust storms manifest as demand shocks. These results highlight that the type of macroeconomic shock triggered by weather depends on both the event’s nature and societal resilience. By uncovering the mechanisms through which weather events propagate through the economy, our findings offer a foundation for more targeted and adaptive climate policy responses.

Keywords: Heating degree days; Freezing degree days; Cooling degree days; Heat wave; Storm; Dust storm; Supply shocks; Demand shocks (search for similar items in EconPapers)
JEL-codes: E00 Q50 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:151:y:2025:i:c:s0264999325001269

DOI: 10.1016/j.econmod.2025.107131

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