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Dynamic Effects of Weather Shocks on Production in European Economies

Author

Listed:
  • Daniele Colombo
  • Laurent Ferrara

Abstract

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.

Suggested Citation

  • Daniele Colombo & Laurent Ferrara, 2024. "Dynamic Effects of Weather Shocks on Production in European Economies," CAMA Working Papers 2024-07, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised Aug 2024.
    • Handle: RePEc:een:camaaa:2024-07
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2024-09/07_2024_colombo_ferrara_revised_august_2024.pdf
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2024-09/07a_2024_colombo_ferrara_original_january_2024.pdf
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    More about this item

    Keywords

    weather shocks; European production; Bayesian SVAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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