| 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
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 a GFU shock, the larger the world output contraction is. |