Severe Weather and the Macroeconomy

Abstract

We investigate the impact of severe weather shocks on the US macroeconomy over the past 60 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 signifi-cant 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 20 months. Our findings suggest limited adaptation to the increased severity of weather in the United States, at least at the macroeconomic level. (JEL E21, E23, E24, E31, Q54)

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