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

62 Pages Posted: 3 Jun 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: June 3, 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. With information up to March 2nd 2020, we show that the Global Weakness Index already sharply increased at a speed at least comparable to the experienced in the 2008 crisis.

Keywords: international, business cycles, factor model, nonlinear

JEL Classification: E32, C22, E27

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 (June 3, 2020). Banco de Espana Working Paper No. 2015, Available at SSRN: https://ssrn.com/abstract=3617695 or http://dx.doi.org/10.2139/ssrn.3617695

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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