The climate crisis is a global defining challenge of our century and geopolitical fragmentation challenges international cooperation. Greenhouse gas emissions resulting from human economic activities, exemplified by the excessive release of CO2 equivalents through fossil fuel consumption, contribute to the warming of the climate. This global warming, as outlined in the IPCC 2023 report, induces transformative changes in climate conditions, heightening the likelihood and severity of extreme weather events.

The primary objective of my thesis is to examine the impacts of extreme weather events on the macroeconomy within a context characterized by high uncertainty. The focus is on analyzing the nonlinear effects of climatic disasters in the short-to-medium term across various economic sectors and evaluating their implications for macro-financial stability. The provision of empirical evidence in this realm holds significance for policymakers, guiding adjustments to policy tools to address the associated physical risks and facilitating the formulation of region-specific climate policies based on heterogeneity.

The empirical study will be based on climatic measurements in conjunction with macrofinancial data. The approach involves the utilization and development of state-of-the-art timeseries models explicitly designed to capture nonlinear effects. Given the granularity of the data and the intricacies of the models, advanced statistical methods, including Machine and Deep Learning for sequential data, will be employed.

The thesis comprises three distinct chapters, each contributing to the existing literature on the subject. The initial chapter focuses on constructing a metric for physical risk shocks, aiming to assess the impact of extreme events on the macroeconomy and its sectors. Emphasis is placed on identifying exogenous variations stemming from the events to enable a causal interpretation of the shocks. In the subsequent chapter, the analysis shifts towards investigating the state-dependent asymmetric effects of physical risk shocks on macro-financial variables, with a particular emphasis on the amplification of impacts contingent upon the level of uncertainty. The final chapter centers on examining regional heterogeneity within the euro area and its spillover effects, contributing empirical evidence on risk-sharing mechanisms within the monetary union.