What Goes Around Comes Around: The US Climate-economic Cycle

• Authors: Konstantin Boss and Alessandra Testa.
• Journal of Macroeconomics, Vol. 85 , Article 103680, September 2025.

We use a spatial data set of US temperatures in a factor-augmented VAR to quantify the contribution of the US economy to fluctuations in temperatures over the past 70 years. Disentangling natural from anthropogenic effects, we find that economic expansions have not only led to warming: technology shocks initially decreased temperatures, whereas investment and labor supply shocks increased them rapidly and persistently. Taken together, these economic shocks explained around 25% of long-term temperature variation in the US. In turn, temperature shocks have induced small contractions in aggregate GDP, but could even be beneficial for the economy, when they predominantly hit the western states.