The Macroeconomic Effects of Temperature Surprise Shocks

42 Pages Posted: 21 Jul 2022

Date Written: July 12, 2022


The question of how climate change affects the economy through temperature fluctuations is high on the economic research agenda, as the identification of exogenous weather shocks is still an open issue. Using daily county-level data since 1970, we construct a series of temperature shocks for the United States that capture the average surprise effect of relatively high and low temperatures experienced in each season, isolating an unanticipated component at business cycle frequency. Temperature surprise shocks in the US have been a balanced mix of heat and cold surprises and reduced in size in recent times. Estimates made with local projections show a negative impact on the US economy via both consumption and investment, entailing a slowdown in aggregate demand and a fall in consumer prices. The Federal Reserve does react by adjusting its economic projections and cutting interest rates, with effects spreading out through the yield curve.

Keywords: climate change, temperatures, surprise shocks, business cycle, monetary policy

JEL Classification: C32, E32, E52, Q54

Suggested Citation

Natoli, Filippo, The Macroeconomic Effects of Temperature Surprise Shocks (July 12, 2022). Available at SSRN: or

Filippo Natoli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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