Good policies or good fortun

Lastly, by estimating two factor models we can compare the series that we believe is the correct measure of global financial conditions – the ‘global factor’ to the series other studies have typi- cally used (the ‘emerging market factor’), and analyze the sensitivity of our results to the construction of the liquidity measure. [...] We report correlations with the IMF’s commodity price in- dex, oil prices, the S&P 500, the NASDAQ, U. S. short- and long-term interest rates, proxied by yields on 3-month and 10-year bonds, the U. S. yield curve, and the VIX.11 Lastly, as a proxy for the strong global economy, we include a measure of world GDP growth. [...] The results from the panel unit root tests are reported in table 7. As can be seen, the presence of a unit root is generally rejected.20 Stationarity of the observable series is one of the assumptions underlying the esti- mation of a principal factor model. [...] We also check the robustness of the estimation of the principal factor model to the stationarity assumption in three ways. [...] The differences are very small (the correlation between the two factors for the global factor is 0.99 and for the emerging market factor 0.95).