Real-time Weakness of the Global Economy: A First Assessment of the Coronavirus Crisis
62 Pages Posted: 3 Jun 2020
Date Written: June 3, 2020
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
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