Real-Time Weakness of the Global Economy: A First Assessment of the Coronavirus Crisis

63 Pages Posted: 25 Mar 2020

See all articles by Danilo Leiva‐Leon

Danilo Leiva‐Leon

Banco de España

Gabriel Pérez-Quirós

European Central Bank (ECB)

Eyno Rots

Magyar Nemzeti Bank

Multiple version iconThere are 3 versions of this paper

Date Written: March 2020

Abstract

We propose an empirical framework to measure the degree of weakness of the global economy in real-time. It relies on nonlinear factor models designed to infer recessionary episodes of heterogeneous deepness, and fitted to the largest advanced economies (U.S., Euro Area, Japan, U.K., Canada and Australia) and emerging markets (China, India, Russia, Brazil, Mexico and South Africa). Based on such inferences, we construct a Global Weakness Index that has three main features. First, it can be updated as soon as new regional data is released, as we show by measuring the economic effects of coronavirus. Second, it provides a consistent narrative of the main regional contributors of world economy's weakness. Third, it allows to perform robust risk assessments based on the probability that the level of global weakness would exceed a certain threshold of interest in every period of time.

Keywords: Coronavirus, factor model, International Business Cycles, Nonlinear

JEL Classification: C22, E27, E32

Suggested Citation

Leiva‐Leon, Danilo and Pérez-Quirós, Gabriel and Rots, Eyno, Real-Time Weakness of the Global Economy: A First Assessment of the Coronavirus Crisis (March 2020). CEPR Discussion Paper No. DP14484, Available at SSRN: https://ssrn.com/abstract=3560291

Danilo Leiva‐Leon (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Gabriel Pérez-Quirós

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Eyno Rots

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

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