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Title: The asymmetric effects of weather shocks on euro area prices Authors:  Catalina Martinez Hernandez - European Central Bank (Germany) [presenting]
Matteo Ciccarelli - European Central Bank (Germany)
Friderike Kuik - European Central Bank (Germany)
Abstract: The impacts of weather shocks on sectoral prices in the four largest euro area economies are assessed. The effects are estimated using high-frequency weather data and monthly data on prices and output, within a set of Bayesian Vector Autoregressions, which explicitly consider the seasonal dependence of the shock. The results suggest that temperature-related shocks have significant effects on prices. The response of aggregate prices to temperature shocks occurs mainly via food, energy and service prices, and is heterogeneous across countries and over seasons. An increase in monthly mean temperatures increases prices in summer and decreases prices in other seasons of the year, with a stronger response in warmer euro area countries. An increase in temperature variability significantly impacts prices beyond the impacts of changes in means. Our results suggest that future weather shocks - increasingly frequent and intense in a changing climate - affect price and price volatility dynamics.