Unusual shocks in our usual models

Filippo Ferroni, Jonas D.M. Fisher and Leonardo Melosi

Journal of Monetary Economics, 2024, vol. 147, issue C

Abstract: We propose a method to allow usual business cycle models to account for the unusual COVID episode. The pandemic and the public and private responses to it are represented by a new shock called the Covid shock, which loads onto wedges that underlie the usual shocks and comes with news about its evolution. We apply our method to a standard medium-scale model, estimating the loadings with 2020q2 data and the evolving news using professional forecasts. The Covid shock accounts for most of the early macroeconomic dynamics, was inflationary and a persistent drag on activity, and the majority of its effects were unanticipated. We also show how the Covid shock can be used to estimate DSGE models with data before, during, and after the pandemic.

Keywords: COVID; Pandemic; DSGE models; Survey of Professional Forecasters; Business cycles (search for similar items in EconPapers)
JEL-codes: C51 E10 E31 E32 E52 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Unusual Shocks in our Usual Models (2023)
Working Paper: Usual Shocks in our Usual Models (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:c:s0304393224000515

DOI: 10.1016/j.jmoneco.2024.103598

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