Climate Change and Economic Dynamics: Temperature-dependent Shock Propagation

Christian Glocker and Thomas Url
Additional contact information
Christian Glocker: WIFO
Thomas Url: WIFO

No 730, WIFO Working Papers from WIFO

Abstract: The gradual transition between different climate states, as evidenced by the smooth rise in temperatures, motivates conceptualizing climate change as a phenomenon influencing the propagation mechanism of traditional macroeconomic shocks, rather than as an independent shock. We formalize this idea through a theoretical model, which shows that climate change induces a structural shift in the economy by steepening the aggregate supply curve, thereby exacerbating the price effects of demand shocks while dampening the output response. Our empirical evidence is consistent with this prediction: higher temperatures raise the share of inflation variation attributable to demand shocks by up to 10 percentage points, underscoring the role of climate change in intensifying stagflationary dynamics rather than independently driving business cycle fluctuations.

Keywords: Climate change; Business cycles; Inflation; Interacted panel VAR (search for similar items in EconPapers)
Pages: 128 pages
Date: 2026-07-17
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.wifo.ac.at/?p=451033 abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2026:i:730

Access Statistics for this paper

More papers in WIFO Working Papers from WIFO Contact information at EDIRC.
Bibliographic data for series maintained by Florian Mayr ().