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Temperature surprise shocks

Natoli, Filippo (2022): Temperature surprise shocks.

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Abstract

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 heat and cold events experienced in each season, net of climate trends and adaptation. Temperature surprise shocks in the global warming era have been a balanced mix of heat and cold surprises and reduced in size in recent times, in contrast to common belief. Estimates made with local projections show a negative impact on the US economy at business cycle frequency via both consumption and investment, while the effect on prices is more muted and varies over time. The central bank does react to the shocks by adjusting its economic projections and cutting interest rates, with effects spreading out through the yield curve.

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