Inflation in the face of weather shocks: evidence from Germany, India and Spain

Hegarty, Ronan; Kanagaraj, Pavitra

Inflation in the face of weather shocks: evidence from Germany, India and Spain

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Hegarty, R, Kanagaraj, P. Inflation in the face of weather shocks: evidence from Germany, India and Spain. 2024. handle: http://hdl.handle.net/10230/68741

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Abstract

Climate change poses a significant challenge to central banks aiming to maintain price stability, as frequent and severe weather shocks increase inflation volatility. This paper investigates the impact of temperature shocks on inflation in three major economies, using a high-resolution weather dataset and local projection models. Results indicate asymmetric effects: minor energy price declines in advanced economies due to reduced heating demand and short-run deflation in the emerging economy, with prices quickly realigning. Overall, temperature shocks have limited, temporary effects on prices, driven by demand reductions.

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Treball fi de màster de: Master's Degree in Specialized Economic Analysis: Macroeconomic Policy and Financial Markets Program. Curs 2023-2024
Tutors: Hugo Rodríguez-Mendizábal; Luca Gambetti