Weather Shocks and Sectoral Dynamics in European Economies

This paper investigates the dynamic effects of weather shocks on economic activity in Europe’s three largest economies: Germany, France, and Italy. We develop a novel approach to measuring country-level exposure to abnormal weather, based on grid-level data weighted by economic activity. We construct five harmonized weather indices—heat, cold, drought, precipitation, and wind—and, using a Bayesian SVAR framework, assess their impact on output and prices across major sectors: energy, construction, manufacturing, and services. The results show that weather shocks have both direct and indirect effects on economic activity, with substantial heterogeneity across shock types and production sectors.