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Global financial uncertainty

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  • Giovanni Caggiano
  • Efrem Castelnuovo

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.

Suggested Citation

  • Giovanni Caggiano & Efrem Castelnuovo, 2023. "Global financial uncertainty," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 432-449, April.
    • Handle: RePEc:wly:japmet:v:38:y:2023:i:3:p:432-449
    DOI: 10.1002/jae.2958
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    3. Matthew Read, 2023. "Estimating the Effects of Monetary Policy in Australia Using Sign‐restricted Structural Vector Autoregressions," The Economic Record, The Economic Society of Australia, vol. 99(326), pages 329-358, September.
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    6. Wang, Xinya & Xu, Xin & Rong, Xueyun & Xuan, Siyuan, 2024. "Identification of the contagion effect in China's financial market uncertainties: A multiscale and dynamic perspective," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1340-1362.

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