Building Macroeconomically Relevant Climate Indices via the Assemblage VAR

Christophe Barrette, Philippe Goulet Coulombe and Tim Reinicke

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Abstract: What should a macroeconomically relevant climate index contain? The composition is inherently ambiguous, and aggregation choices affect structural inference. We introduce the Assemblage VAR, which jointly estimates nonnegative aggregation weights and VAR parameters by maximizing the system likelihood-gain criterion, effectively outsourcing aggregation to observed macroeconomic dynamics. Two variants operate in component-space and rank-space, reweighting named subcomponents or emphasizing regions of the cross-sectional distribution. Applied to disaggregated U.S. climate data from the Actuaries Climate Index and NOAA, VARs using the assembled climate measures yield contractionary impulse responses that are substantially larger than those estimated using fixed-weight benchmarks. Weights emphasize high-wind variables and distributional tails over slow-moving components such as sea level.

Date: 2026-10
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2610.10043

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