Contact information: bio photo

Contact information:

Division of International Finance. Board of Governors of the Federal Reserve System. Washington, D.C. 20551.

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With Alexander Mechanic (FRB) and Andrea Raffo (FRB)

The global financial crisis reminded academics and policymakers that the world economy is highly integrated. Between 2008 and 2009, world manufacturing production fell 15 percent, world trade collapsed nearly 30 percent, and unemployment rates jumped almost everywhere. Many economies experienced their deepest recession since the Great Depression. These events generated renewed efforts in the development of measures of global business conditions. In this note we present a Global Conditions Index (GCI), a real-time measure of the health of the global economy constructed using a small set of world economic variables. The GCI can be used to produce nowcast estimates of world GDP growth or to assess the likelihood of turning points in global economic activity. We provide one example that uses the GCI and a measure of financial stress to estimate recession probabilities in the world economy using a machine learning algorithm.

Link to paper.