How do Macroeconomic Expectations React to Extreme Weather Shocks?

Andrew Martinez

No 2025-001, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: I study how extreme weather events affect macroeconomic expectations to better understand the propagation of climate shocks. I identify the immediate and dynamic effects of a Hurricane Katrina-sized shock on business economists' expectations of GDP growth, inflation, and interest rates over the past two decades. My results highlight the importance of forecast revision dynamics. A shock reduces expected growth, but the total dynamic effect is more than double the immediate effect. It is also perceived as a negative supply shock as inflation expectations rise and interest rate expectations fall. The persistence of the response supports models of delayed overshooting.

Keywords: Expectations formation; Hurricanes; Revision dynamics; Natural disasters (search for similar items in EconPapers)
JEL-codes: C23 C33 E66 Q54 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2025-01
New Economics Papers: this item is included in nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:gwc:wpaper:2025-001

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