Global financial uncertainty

Giovanni Caggiano; Efrem Castelnuovo

doi:10.1002/jae.2958

Global financial uncertainty

Giovanni Caggiano, Efrem Castelnuovo

Department of Economics

Research output: Contribution to journal › Article › Research › peer-review

11 Citations (Scopus)

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 set identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the contraction in world output during the Great Recession would have been 13% milder in absence of GFU shocks. We also find support for a global finance uncertainty multiplier: the more global financial conditions deteriorate after a GFU shock, the larger the world output contraction is.

Original language	English
Pages (from-to)	432-449
Number of pages	18
Journal	Journal of Applied Econometrics
Volume	38
Issue number	3
DOIs	https://doi.org/10.1002/jae.2958
Publication status	Published - Apr 2023

Keywords

dynamic hierarchical factor model
global finance uncertainty multiplier
global financial uncertainty
structural VAR
world output loss

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10.1002/jae.2958

Cite this

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title = "Global financial uncertainty",

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 set identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the contraction in world output during the Great Recession would have been 13% milder in absence of GFU shocks. We also find support for a global finance uncertainty multiplier: the more global financial conditions deteriorate after a GFU shock, the larger the world output contraction is.",

keywords = "dynamic hierarchical factor model, global finance uncertainty multiplier, global financial uncertainty, structural VAR, world output loss",

author = "Giovanni Caggiano and Efrem Castelnuovo",

note = "Funding Information: We thank Barbara Rossi (Editor) and three anonymous referees for their thoughtful comments. We also thank Natalia Bailey, Tino Berger, Nicholas Bloom, Fabio Canova, Danilo Cascaldi-Garcia, Ambrogio Cesa-Bianchi, Todd Clark, Andreas Dibiasi, James Morley, Sarah Mouabbi, Alberto Musso, Salvatore Nistic{\`o}, Giovanni Pellegrino, Alessandro Rebucci, Saverio Simonelli, H{\'e}l{\`e}ne Rey, Xuguang Sheng, Ben Wong, and participants to various seminars, workshops, and conferences for useful comments and suggestions. Andrea Carriero, Silvia Miranda-Agrippino, and Haroon Mumtaz kindly provided us with some of the indicators used in our empirical analysis. Financial support by the ARC via the Discovery Grants DP160102281, DP160102654, and DP190102802 is gratefully acknowledged. Funding Information: We thank Barbara Rossi (Editor) and three anonymous referees for their thoughtful comments. We also thank Natalia Bailey, Tino Berger, Nicholas Bloom, Fabio Canova, Danilo Cascaldi‐Garcia, Ambrogio Cesa‐Bianchi, Todd Clark, Andreas Dibiasi, James Morley, Sarah Mouabbi, Alberto Musso, Salvatore Nistic{\`o}, Giovanni Pellegrino, Alessandro Rebucci, Saverio Simonelli, H{\'e}l{\`e}ne Rey, Xuguang Sheng, Ben Wong, and participants to various seminars, workshops, and conferences for useful comments and suggestions. Andrea Carriero, Silvia Miranda‐Agrippino, and Haroon Mumtaz kindly provided us with some of the indicators used in our empirical analysis. Financial support by the ARC via the Discovery Grants DP160102281, DP160102654, and DP190102802 is gratefully acknowledged. Publisher Copyright: {\textcopyright} 2023 John Wiley & Sons, Ltd.",

year = "2023",

month = apr,

doi = "10.1002/jae.2958",

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AB - 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 set identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the contraction in world output during the Great Recession would have been 13% milder in absence of GFU shocks. We also find support for a global finance uncertainty multiplier: the more global financial conditions deteriorate after a GFU shock, the larger the world output contraction is.

KW - dynamic hierarchical factor model

KW - global finance uncertainty multiplier

KW - global financial uncertainty

KW - structural VAR

KW - world output loss

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EP - 449

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ER -

Global financial uncertainty

Abstract

Keywords

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The macroeconomic effects of global uncertainty

Uncertainty, financial frictions and the Australian business cycle

Cite this

Global financial uncertainty

Abstract

Keywords

Access to Document

Other files and links

Projects

The macroeconomic effects of global uncertainty

Uncertainty, financial frictions and the Australian business cycle

Cite this