The Economic Impact of Low- and High-Frequency Temperature Changes

Nikolay Gospodinov, Ignacio Lopez Gaffney and Serena Ng

Papers from arXiv.org

Abstract: Temperature variations at different frequencies may have distinct impacts on economic outcomes. We first explore ways to estimate the low- and high-frequency components in a U.S. panel of 48 states. All methods suggest slowly evolving low-frequency components of temperature at the state level, and that they share a common factor which covaries with the low-frequency component of economic activity. While we fail to find a statistically significant impact of low-frequency temperature changes on U.S. growth, an international panel of 50 countries suggests that a 1{\deg}C increase in the low-frequency component will reduce economic growth by about one percent in the long run. The linear effect of the high-frequency component is not well determined in all panels, but there is evidence of a non-linear effect in the international panel. The findings are corroborated by time series estimation using data at the unit and national levels. Our empirical work pays attention to distortions that may arise from using one-way clustered errors for inference, and to the possible inadequacy of the additive fixed effect specification in controlling for common time effects.

Date: 2025-05, Revised 2025-12
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