Bad weather has almost no impact on the U.S. economy—unless the banks are already in the middle of a crisis.
April 2, 2026
Original Paper
Severe Weather and Financial (In)stability
SSRN · 6503800
The Takeaway
Most economic models treat climate shocks as direct hits to GDP, but this study found that weather events are 'muted' during stable times. They only become a significant driver of business cycles when they hit during periods of financial instability, functioning as a multiplier of existing bank fragility rather than a standalone economic threat.
From the abstract
We quantify the effect of severe weather shocks on the US economy in an environment in which the economy can switch between periods of financial stability and financial instability, like the Great Recession. We estimate a New Keynesian dynamic stochastic general equilibrium model with banks and severe weather events. We show that severe weather shocks: 1) have a negative impact on real and financial US variables, sizable only in periods of financial instability, but muted effects on nominal vari