<p>I am not sure what you mean by proxy for the financial shock of 2008.</p>
<p>If you simply want to control for the 2008 recession, or estimate its effect why don't you simply include dummy following the <a href="https://fred.stlouisfed.org/series/USREC" rel="nofollow noreferrer">NBER recession indicator</a>.</p>
<p>Shocks are part of the error term. If you would run naive OLS model:</p>
<p><span class="math-container">$$\ln Y_ = \beta_0 + \beta_1 \ln C_t + \beta_2 \ln I_t + \beta_3 \ln G_t + \beta_4 \ln NX_t + \epsilon_t $$</span></p>
<p>shocks to output are given by <span class="math-container">$\epsilon_t$</span>, if you want you can impose some structure on that in various models, but one way or another the unexpected shocks (and financial crises are by definition unexpected)
to the system will come from the error term.</p>

CC BY-SA 4.0
2021-07-14T08:26:59.430Z
The notation suggests a regression of GDP over its spending components (in logs). Wouldn't the residual then capture a shock to the cointegration relationship (the composition of GDP), rather than the impact financial crisis itself?
BrsG
CC BY-SA 4.0
2021-07-14T08:34:42.320Z
@BrsG you are right, that’s why I call it “naive” model eg pretending that there are no issues. Of course, you are right, and not just that here there is even simultaneity so using error is even more problematic, but I just wanted to have some quick equation to use as a backdrop for explanation
1muflon1
CC BY-SA 4.0
2021-07-14T11:37:03.463Z
That would be great I guess but from what I'm seeing (and correct me if I'm wrong) is that it only includes the US? Is there global data on this indicator?
Maybeline Lee
CC BY-SA 4.0
2021-07-13T22:42:49.520Z
2021-07-13T22:42:49.520Z
1muflon1
<p>I'm trying to do some empirical work and trying to find a good proxy for the financial shock of 2008. My first idea was to consider the change in real interest rate between 2007 and 2008 but I don't know if it's good or not.</p>
<p>Just for a general idea, I'm trying to find the relationship between GDP per capita, aging, and the shock of 2008.</p>
<p>If anyone has any good literature on where to start I'd be thankful.</p>

CC BY-SA 4.0
2021-07-14T08:47:06.823Z
Are you trying to control for the impact of the financial crisis in a model of long-term (trend/potential) GDP growth? In that case there is no proxy that can be considered standard, because the identification of the impact itself depends on how you model potential growth.
BrsG
CC BY-SA 4.0
2021-07-14T11:32:44.783Z
Yes, I'm trying to do that. From what I was reading volatility index was said to be a good proxy or bond spread. But I am not very knowledgeable in finance field so I wasn't sure if it's good to consider these or not
Maybeline Lee
CC BY-SA 4.0
2021-07-14T13:20:06.077Z
The VIX and indices like the St. Louis Fed [FSI][1] may be useful in many cases to control for the short-term impact. However it may not be helpful in controlling for damage to the economy that lasts well beyond the short-term impetus.


  [1]: https://fred.stlouisfed.org/series/STLFSI2
BrsG
CC BY-SA 4.0
2021-07-14T13:24:06.467Z
I checked that and it would have been really helpful but it is only for some countries and I need world data. So that's why I'm stuck.
Maybeline Lee
CC BY-SA 4.0
2021-07-14T13:27:58.987Z
The ECB has an consistent indicator for the US, Europe, China. But I don't believe you won't find one for many more economies anywhere else. Beware of the longer-term issue.  https://sdw.ecb.europa.eu/browse.do?node=9689686
BrsG
CC BY-SA 4.0
2021-07-14T13:37:32.457Z
But other than volatility what would you suggest to take as a proxy? And in bad case scenario is the change in real int. rate a decent substitute?
Maybeline Lee
CC BY-SA 4.0
2021-07-14T13:53:23.540Z
See my first comment. Others may disagree.
BrsG
CC BY-SA 4.0
2021-07-15T10:56:01.690Z
Have yi=you taken a look at this: https://economics.stackexchange.com/questions/33445/country-specific-economic-recession-financial-crisis-data/33447#33447
Grada Gukovic
<macroeconomics><financial-crises>
Proxy for financial crisis
Maybeline Lee
# Proxy for financial crisis

(Asked by: username_0 on 2021-07-13)

I'm trying to do some empirical work and trying to find a good proxy for the financial shock of 2008. My first idea was to consider the change in real interest rate between 2007 and 2008 but I don't know if it's good or not.

Just for a general idea, I'm trying to find the relationship between GDP per capita, aging, and the shock of 2008.

If anyone has any good literature on where to start I'd be thankful.

**Tags:** macroeconomics, financial-crises

> **Comments:**
> **username_1**: Are you trying to control for the impact of the financial crisis in a model of long-term (trend/potential) GDP growth? In that case there is no proxy that can be considered standard, because the identification of the impact itself depends on how you model potential growth.  
> **username_0**: Yes, I'm trying to do that. From what I was reading volatility index was said to be a good proxy or bond spread. But I am not very knowledgeable in finance field so I wasn't sure if it's good to consider these or not  
> **username_1**: The VIX and indices like the St. Louis Fed [FSI][1] may be useful in many cases to control for the short-term impact. However it may not be helpful in controlling for damage to the economy that lasts well beyond the short-term impetus.     [1]: https://fred.stlouisfed.org/series/STLFSI2  
> **username_0**: I checked that and it would have been really helpful but it is only for some countries and I need world data. So that's why I'm stuck.  
> **username_1**: The ECB has an consistent indicator for the US, Europe, China. But I don't believe you won't find one for many more economies anywhere else. Beware of the longer-term issue.  https://sdw.ecb.europa.eu/browse.do?node=9689686  
> **username_0**: But other than volatility what would you suggest to take as a proxy? And in bad case scenario is the change in real int. rate a decent substitute?  
> **username_1**: See my first comment. Others may disagree.  
> **username_2**: Have yi=you taken a look at this: https://economics.stackexchange.com/questions/33445/country-specific-economic-recession-financial-crisis-data/33447#33447  

---

## 1 answers

### Answer by username_3 on 2021-07-13. Score: 1

I am not sure what you mean by proxy for the financial shock of 2008.

If you simply want to control for the 2008 recession, or estimate its effect why don't you simply include dummy following the [NBER recession indicator](https://fred.stlouisfed.org/series/USREC).

Shocks are part of the error term. If you would run naive OLS model:

$$\ln Y\_ = \beta\_0 + \beta\_1 \ln C\_t + \beta\_2 \ln I\_t + \beta\_3 \ln G\_t + \beta\_4 \ln NX\_t + \epsilon\_t $$

shocks to output are given by $\epsilon\_t$, if you want you can impose some structure on that in various models, but one way or another the unexpected shocks (and financial crises are by definition unexpected)
to the system will come from the error term.

> **Comments:**
> **username_1**: The notation suggests a regression of GDP over its spending components (in logs). Wouldn't the residual then capture a shock to the cointegration relationship (the composition of GDP), rather than the impact financial crisis itself?  
> **username_3**: @username_1 you are right, that’s why I call it “naive” model eg pretending that there are no issues. Of course, you are right, and not just that here there is even simultaneity so using error is even more problematic, but I just wanted to have some quick equation to use as a backdrop for explanation  
> **username_0**: That would be great I guess but from what I'm seeing (and correct me if I'm wrong) is that it only includes the US? Is there global data on this indicator?  

---

