## Persistent Temperature, Capital Structure, and the Long-Run Level of Output

_IMF Working Papers, June 12, 2026_

## Source details

**Canonical URL:** [Persistent Temperature, Capital Structure, and the Long-Run Level of Output](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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## Bibliographic details
- Authors: Ha Nguyen
- Published: June 12, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229049207.001

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### Overview
- 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.

### Methodology
- Temperature decomposition:
  - Uses a Kalman filter state-space decomposition to separate temperature into a permanent component and transitory weather fluctuations.
- Empirical framework:
  - Links the permanent temperature component to trend output using a panel cointegration and error-correction framework.
- Output decomposition:
  - Decomposes aggregate output into population and output per capita to identify channels of long-run losses.

### Key Findings
- Long-run level of output:
  - "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."
- Channels of adjustment:
  - In the full sample, long-run output losses operate primarily through demographic adjustment (population).
  - In advanced economies, both long-run output per capita and population decline as the climate warms.
- Role of capital structure:
  - Economies with higher capital intensity and more durable capital stocks experience larger long-run per capita output losses.
- Distribution of vulnerability:
  - 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.
- Relationship to existing literature:
  - These findings complement rather than contradict the well-established finding that developing countries are more exposed to short-run weather shocks.

### Implications for analysis and policy (as implied by findings)
- 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.

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_Source: https://www.imf.org/en/publications/wp/issues/2026/06/09/persistent-temperature-capital-structure-and-the-long-run-level-of-output-576724_