The asymmetric effects of temperature shocks on inflation in the largest euro area countries

Matteo Ciccarelli, Friderike Kuik and Catalina Martínez Hernández

European Economic Review, 2024, vol. 168, issue C

Abstract: This paper assesses the impact of temperature shocks on sectoral inflation in the four largest euro area economies. We combine high-frequency weather data with monthly data on consumer prices, industrial production, producer prices and farm gate prices within a set of Bayesian Vector Autoregressions 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 – with a stronger response in warmer euro area countries – and reduces inflation on average in the other seasons.

Keywords: Weather shocks; Climate change; Inflation; Vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E31 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:168:y:2024:i:c:s001429212400134x

DOI: 10.1016/j.euroecorev.2024.104805

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