Extreme Weather, Economic Implications, and Energy Consumption

Abstract

This study investigates the impact of extreme weather, measured by the Australian Actuaries Climate Index (AACI), on Australia's economy. Incorporating temperature, rainfall, drought, wind, and sea level, the AACI provides a comprehensive measure of extreme weather conditions. The findings from a VAR (Vector Autoregression) model reveal persistent negative effects of extreme weather shocks on gross domestic product (GDP). Initially, consumer prices decline, then turn positive in the medium term due to supply-side effects. Additionally, initially, interest rates decrease, unemployment rates rise, and energy consumption increases following extreme weather shocks. This research sheds light on the intricate relationship between extreme weather and key economic indicators.

Keywords: Extreme Weather Shocks, Macroeconomic Effects, Energy Consumption

JEL Classification: Q54, Q4