IMF Working Papers

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Format: Chicago

Luca Bettarelli, Davide Furceri, Michael Ganslmeier, and Marc Schiffbauer. "The Economic Costs of Temperature Uncertainty", IMF Working Papers 2025, 026 (2025), accessed February 16, 2025, https://doi.org/10.5089/9798400295119.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Beyond its environmental damage, climate change is predicted to produce significant economic costs. Combining novel high-frequency geospatial temperature data from satellites with measures of economic activity for the universe of US listed firms, this article examines a potentially important channel through which global warming can lead to economic costs: temperature uncertainty. The results show that temperature uncertainty—by increasing power outages, reducing labor productivity, and increasing the degree of exposure of firms to environmental and non-political risks, as well as economic uncertainty at the firm-level—persistently reduce firms’ investment and sales. This effect varies across firms, with those characterized by tighter financial constraints being disproportionally more affected.

Subject: Capital spending, Climate change, Environment, Expenditure

Keywords: Capital spending, Climate change, Firms., Temperature Volatility, Temperatures, Uncertainty

Publication Details