|
on International Finance |
| By: | Caggiano, Giovanni; Castelnuovo, Efrem |
| 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 self-identifcation 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 GFU shocks, the larger the world output contraction is. |
| JEL: | C32 E32 |
| Date: | 2021–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2021_001&r=all |
| By: | Adrian, Tobias (Monetary and Capital Markets Department); Borowiecki, Karol Jan (Department of Business and Economics); Tepper, Alexander (Columbia University) |
| Abstract: | The size and the leverage of financial market investors and the elasticity of demand of unlevered investors define MinMaSS, the smallest market size that can support a given degree of leverage. The financial system's potential for financial crises can be measured by the stability ratio, the fraction of total market size to MinMaSS. We use that financial stability metric to gauge the buildup of vulnerability in the run-up to the 1998 Long-Term Capital Management crisis and argue that policymakers could have detected the potential for the crisis. |
| Keywords: | Leverage; financial crisis; financial stability; minimum market size for stability; MinMaSS; stability ratio; Long-Term Capital Management; LTCM |
| JEL: | G01 G10 G20 G21 |
| Date: | 2021–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2021_003&r=all |