Dynamic effects of weather shocks on production in European economies

📅 R&R: 2024-02-05

This paper evaluates the dynamic impact of weather shocks on economic activity in the three main European countries—Germany, France, and Italy. To capture meaningful variations in weather patterns, we propose a novel monthly Composite Weather Index (CWI). This index incorporates relevant information of five weather-specific shocks: heat, cold, drought, precipitation, and winds. We estimate a series of country-specific Bayesian Structural Vector Autoregressive models to assess the effects of weather shocks on distinct production sectors, including energy, construction, manufacturing, and services, as well as sectoral prices. The findings reveal evidence of both direct and indirect significant impacts of weather shocks on economic activity in Europe, with each component of the CWI exerting heterogeneous effects across different countries and production sectors.

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Suggested citation: Colombo D., & Ferrara L. (2023) “Dynamic effects of weather shocks on production in European economies”