  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.
