The Influence of Climate Disturbances on Growth and Inflation

Abstract

Given the multifaceted impact of climate disturbances, analyzing the effects of climate change on inflation and growth patterns presents challenges. Such disturbances can have contrasting implications for demand and supply simultaneously. The impact of climate-induced disturbances on economic growth and inflation is determined not only by the immediate effects of these events but also by the long-term damage they cause and a country's institutional and financial capacity to respond and recover. In our study, we employ the local projection method to assess the impact of climate-related catastrophes on inflation and economic growth in various countries from 1970 to 2020. Our findings indicate that inflation and GDP growth react differently to various categories of climate-related events. When we group our data by economic maturity, we find that the effects of climate events on inflation and growth depend on a country's stage of development, its present economic health, and fiscal resilience at the time of the event.