The Global Effects of Global Risk and Uncertainty

Posted: 1 Jun 2020

See all articles by Dario Bonciani

Dario Bonciani

Bank of England

Martino Ricci

European Central Bank (ECB)

Date Written: May 22, 2020


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

JEL Classification: F41, E32, F65

Suggested Citation

Bonciani, Dario and Ricci, Martino, The Global Effects of Global Risk and Uncertainty (May 22, 2020). Bank of England Working Paper No. 863, Available at SSRN:

Dario Bonciani (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Martino Ricci

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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