Global temperature shocks and real exchange rates

Abstract

We find heterogeneous impulse responses of monthly U.S. dollar (USD) real exchange rates of 76 countries to global temperature shocks. Four years after a positive 1 °C increase in global temperature over its historical average, the Czech Republic currency appreciates by 14.5 percent against the USD while the currency of Burundi depreciates by 4.2 percent. The determinants of response heterogeneity are studied by regressing local projection response coefficients on country characteristics. At the 48 month horizon, a country’s currency more likely to depreciate if the country has grown faster, is more dependent on agriculture and tourism.