Extreme Weather Events and Economic Activity: The Case of Low Water Levels on the Rhine River

Abstract We make use of historical data on water levels on the Rhine river to analyze the impact of weather-related supply shocks on economic activity in Germany. Our analysis shows that low water levels lead to severe disruptions in inland water transportation and cause a significant and economically meaningful decrease of economic activity. In a month with 30 days of low water, industrial production in Germany declines by about 1 percent, ceteris paribus. Our analysis highlights the importance of extreme weather events for business cycle analysis and contributes to gauging the costs of extreme weather events in advanced economies.