Research

This paper examines how temperature shocks influence both the level and volatility of key macroeconomic variables across a broad panel of countries. We develop a novel global-to-local identification strategy that uses exogenous variation from the El Niño-Southern Oscillation (ENSO) to isolate temperature anomalies at the country level. Our results show that a 1°C rise in temperature anomalies leads to persistent inflationary pressures and a decline in economic activity, with effects particularly pronounced in developing economies – where inflation can increase by up to 1.2%. Incorporating a stochastic volatility-in-mean framework, we find that these shocks also elevate macroeconomic uncertainty by raising the volatility of GDP growth and consumer price inflation. Together, these findings highlight the importance of modeling climate shocks not only through their direct effects on prices and output, but also through their second-moment consequences, which may warrant policy attention.

Presented at: Macroeconomic Implications of Climate-Related Risks: Challenges and Opportunities for the Low-Carbon Transition Workshop (2026), De Nederlandsche Bank (2025), Deutsche Bundesbank (2025), European Central Bank (invited, 2025), Second International Conference on the Climate-Macro-Finance Interface (2025), IAAE (2025), University of Oxford* (2025), Queen Mary University of London (2025), Royal Economic Society PhD Conference (2024).

This paper studies how innovations in temperature, precipitation, and sunshine anomalies reshape tail risk dynamics in German sectoral production. Using Quantile Local Projections, we estimate quantile-specific impulse responses of sectoral growth to these weather shocks, allowing the responses to vary across seasons and during episodes of extreme weather. We document that weather shocks affect sectoral downside and upside risks, with large heterogeneity in the direction, magnitude and persistence across industries, seasons and climate variables. In particular, mild temperature and sunshine innovations are often associated with a reduction in downside risk by lifting up the left tail, whereas extreme anomalies can reverse these gains and amplify vulnerability. Precipitation shocks are found to have a limited, mostly negative, impact on sectoral growth, affecting the majority of sectors during autumn.

Presented at: Deutsche Bundesbank, Queen Mary University of London.