Extreme Weather and the Macroeconomy

We investigate the macroeconomic impacts of extreme weather shocks on the United States economy over the past sixty years. To identify changes in extreme weather patterns, we use the Actuaries Climate Index, which tracks changes in extreme temperatures, heavy rainfall, drought, high wind, and sea level. We find strong evidence of time-varying effects: While the impacts of extreme weather shocks are negligible at the beginning of the sample, they become significant at the end, where an increase in the index persistently reduces aggregate industrial production growth while raising aggregate unemployment and inflation.