Extreme Weather in Europe: Determinants and Economic Impact

Marcelle Chauvet, Claudio Morana and Murilo Silva

No 547, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This paper investigates the relationship between anthropogenic greenhouse gas (GHG) emissions and extreme weather conditions in Europe using a novel panel regression trend–cycle decomposition approach. The methodology integrates human-induced factors— proxied by GHG emissions— with natural climatic oscillations. Using the European Extreme Events Climate Index (E3CI) and its seven subcomponents for 40 European countries since 1981, the study finds a highly nonlinear relationship between GHG emissions and worsening extreme weather, driven by a dominant common component consistent with global climate dynamics. Building on these results, dynamic panel regressions within an Autometrics and model-averaging framework reveal significant contractions in GDP growth, with the largest effects in the services sector, and identify extreme wind and precipitation events as the most damaging. Climate deterioration operates through both supply and demand channels— particularly via private spending and productivity— and contributes to structural economic divergence across Europe. Effective mitigation and sustainable economic development are the most powerful tools to counter these adverse effects, while adaptation and institutional improvements serve as second-best measures, particularly against wild…res and extreme temperatures.

Keywords: climate change; extreme weather events; global warming; GHG emissions; economic impact and transmission mechanism of climate change; trend-cycle decomposition; dynamic panel model; Europe (search for similar items in EconPapers)
JEL-codes: C21 C23 Q51 Q54 (search for similar items in EconPapers)
Pages: 70
Date: 2025-01, Revised 2025-10
New Economics Papers: this item is included in nep-agr, nep-eec and nep-env
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Working Paper: Extreme Weather in Europe: Determinants and Economic Impact (2025)
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