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The global effects of global risk and uncertainty

Dario Bonciani () and Martino Ricci ()

No 863, Bank of England working papers from Bank of England

Abstract: 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.

Keywords: Global uncertainty; global risk aversion; global financial cycle; small open economies (search for similar items in EconPapers)
JEL-codes: E32 F41 F65 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2020-05-22
New Economics Papers: this item is included in nep-fdg, nep-mac, nep-opm, nep-ore and nep-rmg
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Working Paper: The global effects of global risk and uncertainty (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0863

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