Dynamic sectoral effects of weather shocks on European economies

📅 R&R: 2024-02-05

This paper investigates the dynamic effects of weather shocks on economic activity in the three largest economies in Europe: Germany, France, and Italy. To capture meaningful variation in weather conditions, we introduce a novel approach to measuring \textit{abnormal} weather, constructed from grid-level data weighted by economic activity. We develop five harmonised weather indices—heat, cold, drought, precipitation, and wind—and, using Bayesian SVAR analysis, examine their impact on both output and prices across key sectors, including energy, construction, manufacturing, and services. The findings reveal that weather shocks exert both direct and indirect effects on economic activity, with each weather component displaying heterogeneous impacts across countries and production sectors.

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