Title Financial stress and economic activity : evidence from a new worldwide index / Hites Ahir, Giovanni Dell'Ariccia, Davide Furceri, Chris Papageorgiou and Hanbo Qi

Published London : Centre for Economic Policy Research, 2023

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Description 1 online resource (129 pages) : illustrations Series Discussion paper series, 0265-8003 ; no. 18585 International macroeconomics and finance Banking and corporate finance Discussion paper (Centre for Economic Policy Research (Great Britain)) ; no. 18585. Summary This paper uses text analysis to construct a continuous financial stress index (FSI) for 110 countries over each quarter during the period 1967-2018. It relies on a computer algorithm along with human expert oversight and is thus easy to update. The new indicator has a larger country and time coverage and higher frequency than similar measures focusing on advanced economies. And it complements existing binary chronologies in that it can assess the severity of financial crises. We use the indicator to assess the impact of financial stress on the economy using both country- and firm-level data. Our main findings are fivefold: i) consistent with existing literature, we show an economically significant and persistent relationship between financial stress and output; ii) the effect is larger in emerging markets and developing economies and (iii) for higher levels of financial stress; iv) we deal with simultaneous causality by constructing a novel instrument -- financial stress originating from other countries -- using information from the text analysis, and show that, while there is clear evidence that financial stress harms economic activities, OLS estimates tend to overestimate the magnitude of this effect; (iv) we confirm the presence of an exogenous effect of financial stress through a difference-in-differences exercise and show that effects are larger for firms that are more financially constrained and less profitable Notes "Published 08 November 2023" "Submitted 06 November 2023" Bibliography Includes bibliographical references (pages 30-32) Notes Description based on online resource; title from https://cepr.org/publications/dp18585 viewed December 27, 2023 Subject Financial crises -- Economic aspects International economic relations. Form Electronic book Author Dell'Ariccia, Giovanni, author. Furceri, Davide, author. Papageorgiou, Chris, author. Qi, Hanbo, author Centre for Economic Policy Research (Great Britain), publisher.

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