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An Uncertainty Thermometer to Measure the Macroeconomic‐Financial Risk in South American Countries

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  • Marcela Guachamín
  • Diana Ramírez‐Cifuentes
  • Olga Delgado

Abstract

This paper aims to develop an uncertainty thermometer to identify and measure the macro‐social‐financial risk of 10 SA countries from 1978 to 2014. This thermometer is based on the early warning models to facilitate systemic risk monitoring. Contrary to other studies, we build a macroeconomic‐social‐financial vulnerability index composed of macroeconomic, social development, liquidity, solvency and market vulnerability sub‐indicators through the partial least squares structural equation model. We identify high (unmanageable, intolerable and unstable) and low (manageable, moderate, stable and strong) risk levels using machine learning methods. Our results are robust and consistent, because the macroeconomic‐social‐financial index captures periods of high uncertainty presented in the region. © 2020 John Wiley & Sons, Ltd.

Suggested Citation

  • Marcela Guachamín & Diana Ramírez‐Cifuentes & Olga Delgado, 2020. "An Uncertainty Thermometer to Measure the Macroeconomic‐Financial Risk in South American Countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(6), pages 854-890, August.
  • Handle: RePEc:wly:jintdv:v:32:y:2020:i:6:p:854-890
    DOI: 10.1002/jid.3480
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