“Do financial uncertainty shocks matter? A global perspective”

Financial uncertainty shocks have been found to have substantial macroeconomic effects and may potentially contribute to global recessions. This thesis investigates the impact of global financial uncertainty shocks on the world economy using a structural VAR analysis with quarterly global data. A proxy-SVAR approach is employed to identify the shock of interest, using the instrument developed by Andreasen et al. (2024). The findings suggest that such shocks significantly contribute to global recessions, negatively affecting various macroeconomic and financial variables. By assessing whether financial uncertainty shocks act as drivers of global recessions, this research enhances the understanding of financial uncertainty's role in global economic instability. In addition, the thesis explores the role of other shocks in driving global recessions, focusing on monetary policy, central bank information, oil supply and oil demand shocks. The findings suggest that contractionary monetary policy shocks and oil supply shocks are key drivers of global recessions, while positive central bank information shocks and positive oil demand shocks are linked to periods of global economic expansions. Interestingly, monetary policy and oil supply shocks increase global financial uncertainty, whereas positive oil demand and central bank information shocks reduce it.