Abstract:
We estimate a novel measure of global Önancial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-speciÖc factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identiÖcation via a combination of narrative, sign, ratio, and correlation restrictions. We Önd 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 Önance uncertainty multiplier: the more global Önancial conditions deteriorate after GFU shocks, the larger the world output contraction is.