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Global Financial Risk Thresholds and Business Cycle Fluctuations: A Dynamic Heterogeneity Model Approach

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  • Fan Shi
  • Leyi Chen

Abstract

This study constructs a dynamic heterogeneity threshold model using unbalanced panel data from 146 countries/regions (1984–2017). The findings show that (1) financial risk has a non-linear effect on business cycle fluctuations and a significant global financial risk threshold effect; (2) the threshold of financial risk is significantly lower in emerging market economies than in developed and latecomer market economies; (3) in the long-run, regardless of the threshold effect, once financial risk expands, it will exacerbate business cycle fluctuations; and (4) the threshold effect of different potential financial risks on business cycle fluctuations is heterogeneous.

Suggested Citation

  • Fan Shi & Leyi Chen, 2021. "Global Financial Risk Thresholds and Business Cycle Fluctuations: A Dynamic Heterogeneity Model Approach," Global Economic Review, Taylor & Francis Journals, vol. 50(4), pages 382-407, October.
    • Handle: RePEc:taf:glecrv:v:50:y:2021:i:4:p:382-407
    DOI: 10.1080/1226508X.2021.2004906
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