Global Uncertainty

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Title: Global Uncertainty
ISBN: 978-952-323-365-2
Author: Caggiano, Giovanni ; Castelnuovo, Efrem
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2021
Series number: 1/2021
Year of publication: 2021
Publication date: 11.2.2021
Pages: 60
Subject (yso): epävarmuus; tuotanto; mallit
JEL: C32; E32
Other keywords: Global Financial Uncertainty; dynamic hierarchical factor model; structural VAR; world output loss; global finance uncertainty multiplier; VAR
Abstract: We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves self-identifcation via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is.

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