The full sample estimates of the gwi shown in chart a

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The full-sample estimates of the GWI, shown in Chart A of Figure 4 , are of high importance in order to compare the current state of the world economy with respect to the past, based on all available information. However, it is also relevant addressing whether the GWI index is able to provide accurate real-time assessments of the state of the world economy, that is, by using only the available information at the moment of the estimation. In doing so, we recursively estimate all the models associated to the 12 economic regions under consideration by including one month of information at a time. Our estimations of the models are based on expanding windows, staring at the beginning of the sample for each region, as reported in Table 1 , and ending in periods from 2007:01 until 2020:02. 13 Next, we compute the GWI associated the each of the recursive estimations, and collect the last available estimates for each vintage of data. The sequence of these collected GWI estimates, shown in Chart B of Figure 4 , represent the assessments that our proposed framework provides about the state of the world economy at every period, constructed by using only the available information at that point in time. Notice that the real-time GWI index resembles fairly well the full-sample estimates, indicating a robust performance in inferring regimes of low activity in a timely fashion. This feature can 11 The world GDP is taken from the IMF database. 12 The credible set of the GWI is define by the percentiles 16th and 84th of the simulated distribution. 13 Due to the complexity of the international environment we are dealing with, there are data availability constraints, and therefore, our estimations do not take into account data revisions of the associated variables. ECB Working Paper Series No 2381 / March 2020 19
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be particularly observed at the beginning of the Great Recession, where the GWI provided a strong real-time alert, taking values higher than 0.5 during the first months of 2008. Notice that every day that a new figure of data on the variables associated to the different regions (in Table 1 ) is released the GWI can be updated. To the best of our knowledge there is no other model-based index that provides updates on the state of the global economy with such a high frequency. Yet, there is a non-model-based index that is able to proxy the overall ‘sentiment’ of agents about the likelihood of an upcoming global recession. This index can be computed by counting the number of web searches of the words “Global Recession” performed by internet user from all over the world, and therefore, can also be updated at the daily frequency. Figure 5 plots the web search index, which is associated to agents’ inference about a global recession, along with the GWI, which is based on information of real economic activity. The figure shows that despite both indexes pick up around the last global recession, as dated by Kose et al. ( 2020 ), the GWI substantially leads the web search index. In particular, the web
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  • Fall '19
  • Economics, Recession, Late-2000s recession, GWI

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