“It’s not the heat, it’s the humidity!” New Climate Indices for Europe with a Multilevel Factor Model

Chiara Casoli, Matteo Manera, Luca Pedini and Daniele Valenti

No 376264, FEEM Working Papers from Fondazione Eni Enrico Mattei (FEEM)

Abstract: We construct a comprehensive set of climate indices for European countries that account for several variables related to weather, atmospheric conditions, and water availability. Our dataset includes monthly gridded climate observations from ERA5-Land, aggregated at the country level. Employing a Multilevel Dynamic Factor Model, we disentangle a global indicator, capturing overall climate dynamics across Europe, from country-specific local indices. While most empirical studies proxy climate through temperature or precipitation, our approach acknowledges that other atmospheric dimensions, such as humidity, radiation, and evaporation, jointly shape climatic variability and its economic effects. The global index primarily reflects temperature patterns common to most European countries, whereas the local indicators capture other meteorological phenomena and variations in water reserves. Finally, we show, via panel local projections, that different filtering and detrending procedures used to construct climate anomalies influence the estimated effects of climate shocks on economic activity.

Keywords: Climate Change; Environmental Economics and Policy; Sustainability (search for similar items in EconPapers)
Pages: 31
Date: 2025-11-10
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemwp:376264

DOI: 10.22004/ag.econ.376264

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