Heterogeneity, Production Networks and the Economic Impact of Weather Shocks (JMP)


This paper studies the macroeconomic implications of state and sector specific sensitivity toweather fluctuations and interregional production networks in the United States. I build a general equilibrium model where the impact of weather fluctuations on productivity is state-sector dependent, and networks expose sectors to weather shocks from other regions through the use of intermediate inputs. I use annual data on sectoral GDP andweather by state from 1970 to 2019 to quantify these mechanisms. My estimates show that models that do not consider these characteristics underestimate the aggregate impact ofweather fluctuations by at least a factor of 3. In particular, when the whole economy faces an unexpected increase in temperature of 1 Celsius degree, the contraction in economic activity increases from -0.13 to -0.37 percent once heterogeneity is considered and to -1.14 percent when networks are included.

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Christian Velasquez
Christian Velasquez
Ph.D. Candidate

My research interests include Macroeconomics of Climate Change, International finance, and Small Open Economies.