Dynamic Effects of Weather Shocks on Production in European Economies
This paper evaluates the dynamic impact of weather shocks on economic activity within the three main European countries. To consolidate meaningful variation in weather patterns, we propose a novel monthly composite weather index (CWI). This index captures relevant information on severe cold and heat conditions, drought, heavy precipitation, and intense wind events. We estimate a series of country-specific Bayesian Structural Vector Autoregressive models to assess the effects of weather shocks on distinct production sectors, namely energy, construction, manufacturing, and services. The findings reveal evidence of a significant impact 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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