The euro area’s pandemic recession: A DSGE-based interpretation

Roberta Cardani, Olga Croitorov, Massimo Giovannini, Philipp Pfeiffer, Marco Ratto and Lukas Vogel

Journal of Economic Dynamics and Control, 2022, vol. 143, issue C

Abstract: This paper augments the European Commission’s open-economy DSGE model (GM) with COVID-specific shocks (‘forced savings’, labour hoarding) and financially-constrained investors to account for the extreme volatility of private domestic demand and hours worked during COVID-19, and it estimates the model on euro area data for the period 1998q4–2021q4. It takes a pragmatic approach of adapting the workhorse model of a policy institution to COVID-19 data. ‘Forced savings’ are central to explain quarterly real GDP growth during the pandemic, complemented by contributions from foreign demand and trade, and the negative impact of persistently higher savings after the first wave. We provide extensive model validation, including a comparison to off-model evidence for COVID-related restrictions, and a comparison of different model specifications.

Keywords: COVID-19; Estimated DSGE model; Euro area; Recession; Forced savings (search for similar items in EconPapers)
JEL-codes: C11 E10 E20 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:143:y:2022:i:c:s0165188922002160

DOI: 10.1016/j.jedc.2022.104512

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