Temperature Shocks and Price Stability

Sammanfattning: This thesis investigates the interplay between temperatures and prices in an advanced economy context. To this end, I estimate the impulse response to a 1°C temperature anomaly on the UK economy. By combining high-frequency geospatial temperature data with sub-national population estimates, I construct a quarterly population-weighted temperature series spanning from 1975 to 2021. Making use of the fact that macroeconomic data for the UK is available at high frequencies and with a broad coverage across sectors and price groups, I uncover the dynamic response of both aggregate price indices as well as the major underlying channels of impact. I find that unexpected temperature stresses place upward pressure on key components of the consumer price index, particularly energy and food prices. As to the quantity-response, my findings suggest that the effect on prices on the UK economy act primarily through supply-side channels, which is consistent with the effects documented in the broader climate-economy literature.