What goes around comes around: The US climate-economic cycle

Konstantin Boss and Alessandra Testa

Journal of Macroeconomics, 2025, vol. 85, issue C

Abstract: We use a spatial data set of US temperatures in a factor-augmented VAR to quantify the contribution of the US economy to fluctuations in temperatures over the past 70 years. Disentangling natural from anthropogenic effects, we find that economic expansions have not only led to warming: technology shocks initially decreased temperatures, whereas investment and labor supply shocks increased them rapidly and persistently. Taken together, these economic shocks explained around 25% of long-term temperature variation in the US. In turn, temperature shocks have induced small contractions in aggregate GDP, but could even be beneficial for the economy, when they predominantly hit the western states.

Keywords: Factor-augmented VAR; Climate econometrics; Temperature shocks; Frequency domain identification (search for similar items in EconPapers)
JEL-codes: C32 C38 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:85:y:2025:i:c:s0164070425000175

DOI: 10.1016/j.jmacro.2025.103680

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