A0649
Title: Macroeconomic effects of temperature distributional shocks
Authors: Lola Gadea - University of Zaragoza (Spain) [presenting]
Jesus Gonzalo - Universidad Carlos III de Madrid (Spain)
Andrey Ramos - Carlos III University of Madrid (Spain)
Abstract: The aim is to propose a novel methodology to assess the macroeconomic effects of distributional temperature shocks, persistent deviations in temperature quantiles from long-term trends, identified using the Hamilton filter. As these shocks are correlated across regions, a factor model is employed to extract their common components. Empirical analysis at the global level, as well as for the United States and the Euro Area, identifies three orthogonal factor shocks, each with significant macroeconomic implications. The first factor, which captures a general shift in the temperature distribution, leads to persistent declines in output and total factor productivity, consistent with prior studies focusing on average temperature. The main contribution is to uncover two additional factors that are uncorrelated with average temperature but affect specific parts of the distribution. These factors generate additional, previously undocumented macroeconomic effects. For instance, the third factor, which alters both tails of the distribution in the same direction, significantly reduces output and productivity in the Euro area. Findings underscore the importance of analyzing the full distribution of temperature shocks, offering new insights for estimating the social cost of carbon and assessing climate-related economic risks.
