Forecasting the propagation of pandemic shocks with a dynamic input-output model

Anton Pichler, Marco Pangallo, R. Maria del Rio-Chanona, François Lafond and J. Farmer

Journal of Economic Dynamics and Control, 2022, vol. 144, issue C

Abstract: We introduce a dynamic disequilibrium input-output model that was used to forecast the economics of the COVID-19 pandemic. This model was designed to understand the upstream and downstream propagation of the industry-specific demand and supply shocks caused by COVID-19, which were exceptional in their severity, suddenness and heterogeneity across industries. The model, which was inspired in part by previous work on the response to natural disasters, includes the introduction of a new functional form for production functions, which allowed us to create bespoke production functions for each industry based on a survey of industry analysts. We also introduced new elements for modeling inventories, consumption and labor. The resulting model made accurate real-time forecasts for the decline of sectoral and aggregate economic activity in the United Kingdom in the second quarter of 2020. We examine some of the theoretical implications of our model and find that the choice of production functions and inventory levels plays a key role in the propagation of pandemic shocks. Our work demonstrates that an out of equilibrium model calibrated against national accounting data can serve as a useful real time policy evaluation and forecasting tool.

Keywords: COVID-19; Production network; Production function; Inventories; Out-of-equilibrium modeling (search for similar items in EconPapers)
JEL-codes: C61 C67 D57 E00 E23 I19 O49 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188922002317
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:144:y:2022:i:c:s0165188922002317

DOI: 10.1016/j.jedc.2022.104527

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().