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  5. Severe Weather and the Macroeconomy

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Severe Weather and the Macroeconomy

  • Hee Soo Kim
  • Christian Matthes
  • Toàn Phan
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

We investigate the impact of severe weather shocks on the US macroeconomy over the past sixty years. Using a nonlinear vector autoregressive model, we find robust evidence of time-varying effects. While negligible at the beginning of the sample, the impact becomes significant at the end, where an increase in the severe weather index reduces aggregate industrial production and consumption growth rates, and raises aggregate unemployment and inflation rates. The effects are persistent for up to twenty months. Our findings suggest limited adaptation to the increased severity of weather in the United States, at least at the macroeconomic level.

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