The Economic Costs of Temperature Uncertainty

IMF Working Papers, January 24, 2025

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Combines novel high-frequency geospatial temperature data from satellites with measures of economic activity for the universe of US listed firms.
Examines temperature uncertainty as a channel through which global warming can lead to economic costs.
Main conclusion: temperature uncertainty persistently reduces firms’ investment and sales.

Temperature uncertainty increases power outages.
Temperature uncertainty reduces labor productivity.
Temperature uncertainty increases the degree of exposure of firms to environmental and non-political risks.
Temperature uncertainty increases economic uncertainty at the firm-level.
These channels lead to persistent reductions in firms’ investment and sales.
Heterogeneous effects: firms characterized by tighter financial constraints are disproportionately more affected.

Subject: Climate change, Employment, Environment, Labor, Labor productivity, Natural disasters, Production
Keywords: Climate change, Employment, Firms., firms' characteristic, firms' investment, Global, impact of Temperature volatility, Labor productivity, Natural disasters, temperature data, temperature uncertainty, Temperature Volatility, Temperatures, Uncertainty

Content based on "The Economic Costs of Temperature Uncertainty", IMF Working Papers 2025, 026.