Financial condition indices and pandemic uncertainty as recession triggers

Abstract

The main objective of this paper is to investigate the interactions between the constructed Financial Condition Indices (FCI), assumed as a measure of financial stress; the World Pandemic Uncertainty Index (WPUI), as an external factor and the recession probability. The main research tools are the Principal Component Analysis and the random forest model machine-learning algorithm. In particular, we combine the FCI of 11 European economies -Bulgaria,