Climate Risks and Forecastability of the Weekly State-Level Economic Conditions of the United States

We utilize a Dynamic Factor Model with Stochastic Volatility to filter out the national factor from the local components of weekly state-level economic conditions indexes of the United States over the period of April 1987 to August 2021. Then, we forecast the state-level factors. The forecasting experiment depicts statistically significant evidence of out-of-sample predictability over a one-month- to one-year-ahead horizon, with stronger forecasting gains derived for states that do not believe that climate change is happening and are Republican. We also find evidence of national climate risks in accurately forecasting the national factor of economic conditions