The Impact of Climate on Economic and Financial Cycles: A Markov-switching Panel Approach

64 Pages Posted: 12 Jan 2021

See all articles by Monica Billio

Monica Billio

Ca Foscari University of Venice - Dipartimento di Economia

Roberto Casarin

University Ca' Foscari of Venice - Department of Economics

Enrica De Cian

Fondazione Eni Enrico Mattei (FEEM); CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Malcolm Mistry

Fondazione Eni Enrico Mattei (FEEM)

Ayokunle Anthony Osuntuyi

Ca Foscari University of Venice

Date Written: January 6, 2021

Abstract

This paper examines the impact of climate shocks on 13 European economies analysing jointly business and financial cycles, in different phases and disentangling the effects for different sector channels. A Bayesian Panel Markov-switching framework is proposed to jointly estimate the impact of extreme weather events on the economies as well as the interaction between business and financial cycles. Results from the empirical analysis suggest that extreme weather events impact asymmetrically across the different phases of the economy and heterogeneously across the EU countries. Moreover, we highlight how the manufacturing output, a component of the industrial production index, constitutes the main channel through which climate shocks impact the EU economies.

Keywords: Bayesian inference, climate shocks, financial cycle, business cycle, Markov-switching, Multi-country Panel

JEL Classification: C11, C15, C33, C53, E37

Suggested Citation

Billio, Monica and Casarin, Roberto and De Cian, Enrica and Mistry, Malcolm and Osuntuyi, Ayokunle Anthony, The Impact of Climate on Economic and Financial Cycles: A Markov-switching Panel Approach (January 6, 2021). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 03/WP/2021, Available at SSRN: https://ssrn.com/abstract=3764427 or http://dx.doi.org/10.2139/ssrn.3764427

Monica Billio

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Roberto Casarin (Contact Author)

University Ca' Foscari of Venice - Department of Economics ( email )

San Giobbe 873/b
Venice, 30121
Italy
+39 030.298.91.49 (Phone)
+39 030.298.88.37 (Fax)

HOME PAGE: http://sites.google.com/view/robertocasarin

Enrica De Cian

Fondazione Eni Enrico Mattei (FEEM) ( email )

Campo S. M. Formosa, Castello 5252
Venice, 30122
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Malcolm Mistry

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Ayokunle Anthony Osuntuyi

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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