The Economic Costs of Temperature Uncertainty

Luca Bettarelli, Davide Furceri, Michael Ganslmeier and Marc Schiffbauer

No 2025/026, IMF Working Papers from International Monetary Fund

Abstract: Beyond its environmental damage, climate change is predicted to produce significant economic costs. Combining novel high-frequency geospatial temperature data from satellites with measures of economic activity for the universe of US listed firms, this article examines a potentially important channel through which global warming can lead to economic costs: temperature uncertainty. The results show that temperature uncertainty—by increasing power outages, reducing labor productivity, and increasing the degree of exposure of firms to environmental and non-political risks, as well as economic uncertainty at the firm-level—persistently reduce firms’ investment and sales. This effect varies across firms, with those characterized by tighter financial constraints being disproportionally more affected.

Keywords: Temperatures; Temperature Volatility; Uncertainty; Firms.; temperature uncertainty; impact of Temperature volatility; firms' characteristic; temperature data; firms' investment; Climate change; Labor productivity; Natural disasters; Employment; Global (search for similar items in EconPapers)
Pages: 59
Date: 2025-01-24
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