The global effects of global risk and uncertainty

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 22 May 2020

Staff Working Paper No. 863
By Dario Bonciani and Martino Ricci

In this paper, we analyse the effects of a shock to global financial uncertainty and risk aversion on real economic activity. To this end, we extract a common factor from the realised volatilities of about 1,000 risky asset returns from around the world. We then study how shocks to the factor affect economic activity in 44 advanced and emerging small open economies by estimating local projections in a panel regression framework. We find that the output responses are quite heterogeneous across countries but, in general, negative and persistent. Furthermore, the effects of shocks to the global factor are stronger in countries with a higher degree of trade and/or financial openness, as well as in countries with a higher level of vulnerabilities.

PDFThe global effects of global risk and uncertainty

 

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