{
  "title": "Persistent Temperature, Capital Structure, and the Long-Run Level of Output",
  "publication": "IMF Working Papers, June 12, 2026",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2026/06/09/persistent-temperature-capital-structure-and-the-long-run-level-of-output-576724",
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  "summary": "This paper shows that separating persistent (permanent) temperature changes from transitory weather fluctuations can reshape our understanding of the macroeconomic costs of warming.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Research question: How does separating persistent (permanent) temperature changes from transitory weather fluctuations affect estimates of the macroeconomic costs of warming?\n- Central claim: Separating a permanent temperature component from transitory weather fluctuations reshapes the understanding of long-run output losses from warming; a one-degree Celsius higher permanent temperature is associated with a significant decline in the long-run level of output, with full adjustment unfolding over multiple decades to a century."
    },
    {
      "heading": "Methodology",
      "content": "- Temperature decomposition:\n  - Uses a Kalman filter state-space decomposition to separate temperature into a permanent component and transitory weather fluctuations.\n- Empirical framework:\n  - Links the permanent temperature component to trend output using a panel cointegration and error-correction framework.\n- Output decomposition:\n  - Decomposes aggregate output into population and output per capita to identify channels of long-run losses."
    },
    {
      "heading": "Key Findings",
      "content": "- Long-run level of output:\n  - \"A one-degree Celsius higher permanent temperature is associated with a significant decline in the long-run level of output, with full adjustment unfolding over multiple decades to a century.\"\n- Channels of adjustment:\n  - In the full sample, long-run output losses operate primarily through demographic adjustment (population).\n  - In advanced economies, both long-run output per capita and population decline as the climate warms.\n- Role of capital structure:\n  - Economies with higher capital intensity and more durable capital stocks experience larger long-run per capita output losses.\n- Distribution of vulnerability:\n  - Long-run economic vulnerability to persistent warming is more broadly distributed across rich and poor countries than the short-run weather literature implies, reflecting differences in capital structure.\n- Relationship to existing literature:\n  - These findings complement rather than contradict the well-established finding that developing countries are more exposed to short-run weather shocks."
    },
    {
      "heading": "Implications for analysis and policy (as implied by findings)",
      "content": "- Distinguish persistent temperature trends from transitory weather when estimating macroeconomic impacts of warming.\n- Account for demographic channels (population changes) when projecting long-run output losses from persistent warming.\n- Consider capital structure (capital intensity and capital durability) as an important determinant of long-run per capita vulnerability to warming.\n- Reassess the geographic distribution of long-run climate vulnerability; both advanced and developing economies can face significant long-run losses depending on capital structure.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2026/06/09/persistent-temperature-capital-structure-and-the-long-run-level-of-output-576724"
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    "Authors: Ha Nguyen",
    "Published: June 12, 2026",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798229049207.001",
    "Research question: How does separating persistent (permanent) temperature changes from transitory weather fluctuations affect estimates of the macroeconomic costs of warming?",
    "Central claim: Separating a permanent temperature component from transitory weather fluctuations reshapes the understanding of long-run output losses from warming; a one-degree Celsius higher permanent temperature is associated with a significant decline in the long-run level of output, with full adjustment unfolding over multiple decades to a century.",
    "Temperature decomposition:",
    "Empirical framework:",
    "Output decomposition:",
    "Long-run level of output:",
    "Channels of adjustment:",
    "Role of capital structure:",
    "Distribution of vulnerability:",
    "Relationship to existing literature:",
    "Distinguish persistent temperature trends from transitory weather when estimating macroeconomic impacts of warming.",
    "Account for demographic channels (population changes) when projecting long-run output losses from persistent warming.",
    "Consider capital structure (capital intensity and capital durability) as an important determinant of long-run per capita vulnerability to warming.",
    "Reassess the geographic distribution of long-run climate vulnerability; both advanced and developing economies can face significant long-run losses depending on capital structure.",
    "**Working Paper**"
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