Accessible Version
The Transmission of Global Risk, Accessible Data
Figure 1. Global Risk-Off Episodes and Global Risk Proxies
This figure has four panels. All four panels run from 2000m1 to 2023m2, except for the bottom right panel that shows available data through 2019m4. All panels include date markers, shown as vertical lines, for significant financial developments. In order, these events are September 11th terrorist attack (09/11/2001), Dot-Com Bubble Burst (10/09/2022), Bear Sterns Bailout (03/14/2009), Lehman Brothers failure (09/15/2008), Euro Debt Crisis (10/06/2011), the China scare (02/15/2016), and the onset of the COVID pandemic (04/01/2020).
The top left panel presents the Excess Bond Premium (EBP). The EBP fluctuates around 0 percentage points, except for a couple notable peaks. The largest is right after the Lehman Brothers failure, where it peaks at around 3.5%. The early 2000s see an elevated EBP, between 1% and 2%, before falling back to below 0% around 2003. The EBP spikes around 0.5% during the Euro Debt crisis, around 1% during the China scare, and a peak also around 1% during the COVID pandemic, with almost all other post-2010 values below 0%. The top right panel shows 5-year BBB corporate spreads for the U.S. in solid black and foreign economy in dashed blue. Most values are in the range of 50 basis points (bps) to 250bps. The U.S. and foreign data closely track each other before the Lehman Brothers failure, when they reached a peak of around 500bps. There is another spike in corporate spreads during the COVID onset of around 300bps. The bottom left chart shows the VIX index, obtained from FRED. Most values fall between 10 and 30bps. There is a peak at the Lehman Brothers failure of 60bps, a spike of almost 60bps during the COVID pandemic onset, and a spike of 35bps during the Dot-Com Bubble burst and Euro Debt Crisis. The bottom right chart shows the Global Financial Cycle (GFC) factor from Miranda-Agrippino (2020), which fluctuates around 0%. The GFC increased from 0% in 2004 to around 3% right before the collapse of Bear Sterns, after which the GFC contracts, reaching a trough in early 2009 of -3%. Horizonal line marked at zero.
Sources: Excess bond premium from Favara et al. (2016). VIX index obtained from FRED. Corporate spreads constructed using ICE Data Indices, LLC, with permission, and Bloomberg Finance LP, Bloomberg Per Security Data License. GFC factor from Miranda-Agrippino and Rey (2020).
Figure 2. Structural VAR Scenario
This figure presents four panels showing quarterly impulse-response functions from a structural VAR. The median response is show as a black line. The 70% and 90% confidence intervals are shown by dark grey and light grey shaded areas, respectively. The top left chart shows the response of EBP, that rises to 1.5 p.p. from baseline, before declining exponentially to 0 after 20 periods. The top right chart presents the response of the Broad Real Dollar, which begins at zero and rises to 5% from baseline after 2 periods. The bottom left chart shows the U.S. 5-Year BBB corporate spreads, which rise to almost 90bps during the first couple of quarters, before trending downwards towards zero. The bottom right chart shows the evolution of the foreign 5-Year BBB corporate spreads, which rise to 120bps in the first 3 quarters a steadily returns towards zero afterwards. All confidence bands widen as the horizon increases. Horizonal dashed line marked at zero.
Note: The solid black line corresponds to the median response across simulations. We report end-of-quarter values from monthly simulations. Confidence bands are obtained by bootstrapping. The dark and light shaded gray areas denote the 70 and 90 percent confidence intervals, respectively.
Figure 3. Figure 3. Structural VAR Scenario: GDP and Inflation
This figure presents four panels from the same structural VAR, showing results for two additional variables: GDP, and inflation. The median response is charted in black. The 70% and 90% confidence interval are represented by dark grey and light grey shadings, respectively. The top left chart shows the level of U.S. GDP which contracts around 2% below baseline after 8 quarters, before recovering back towards baseline. The top right chart shows that the level of foreign GDP that has a similar response as in the U.S. The bottom left chart shows U.S. inflation, which falls about -1 p.p. below baseline after 4 quarters, before gradually recovering back. The bottom right chart shows foreign inflation, which has a similar response. All confidence bands widen as the horizon increases. Horizonal dashed line marked at zero.
Note: The solid black line corresponds to the median response across simulations. The dark and light shaded gray areas denote the 70 and 90 percent confidence intervals, respectively.
Figure 4. Global Flight-to-Safety Shock
This figure presents four panels showing impulse-response functions from a DSGE model. The figure shows the effect of a global flight-to-safety shock, calibrated to produce a 100bps increase in U.S. corporate spreads. The top left chart shows the impulse response on the level of U.S. (solid black) and foreign GDP (dashed blue), which initially decline about -2% from baseline, and bottoms out at -3.5%, before rising back to baseline. The top right chart shows the impulse response of U.S. (solid black) and foreign inflation (dashed blue), which initially declines around 1 p.p. from baseline, and moves back slowly to baseline afterwards. The bottom left chart shows 5-Year corporate spreads, beginning at 100bps from baseline for the U.S. (solid black) and 120bps for the foreign economy bloc (dashed blue). After the initial increase, U.S. (solid black) and foreign (dashed blue) spreads decay exponentially towards baseline. The bottom right chart shows the response of the real exchange rate, that initially appreciates around 2.0% from baseline, and then returns to baseline. Horizonal dashed line marked at zero.
Note: Impulse responses to $$ζ ̂_t^GFS$$ shock calibrated to produce 100 basis point increase in U.S. corporate spreads. All responses are computed at the posterior mean of the estimated parameters.