A1824
Title: Temperature forecast errors in the Euro Area
Authors: Marta Maria Pisa - Ghent University (Belgium) [presenting]
Francesco Simone Lucidi - Federico II University (Italy)
Alessandro Franconi - University of Pavia (Italy)
Abstract: This paper focuses on analyzing the macroeconomic impacts arising from errors in weather forecasts. Current economic literature on climate change has predominantly addressed physical and transition risks related to climate. While evidence has solidified regarding the adverse effects of such shocks on economic growth, short-term consequences on prices remain ambiguous. The primary objective is to understand how these shocks transmit to prices, a crucial challenge for central banks in addressing the economic implications of climate change. The analysis centers on inflation dynamics affected by extreme weather events and global warming, revealing that the impacts can be either inflationary or deflationary depending on the demand-supply mechanisms triggered. The proposed approach integrates climate information into agents' expectations, suggesting that inaccurate weather forecasts can directly influence price formation. The increasing use of climate information services by economic agents reflects a growing awareness of climate change impacts across various sectors.
