How influential are COVID-19 data points? A fresh look at an estimated small scale DSGE model for the Philippines

Lawrence Dacuycuy

Philippine Review of Economics, 2021, vol. 58, issue 1 and 2, 14-37

Abstract: Shocks emanating from the global pandemic continue to reshape the macroeconomic landscape—dimming national growth prospects, prolonging widespread financial distress among households, firms, and governments and heightening uncertainty. Using a small-scale New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model for the Philippines, we examine the model’s sensitivity to COVID-19 datapoints or extreme observations. Relative to estimates during the base period (2002Q1 to 2019Q4), the inclusion of extreme datapoints worsens the model’s log data density progressively, from the consideration of the first quarter of 2020 to the full sample – an indication that shock propagation mechanisms associated with COVID–19 and other natural disasters should be integrated into the model. Even with the inclusion of said extreme observations, however, the model’s parameters are identified, provided identification schemes are evaluated at posterior median estimates. Judging from the sets of parameter estimates relative to the base sample, the effects of extreme observations are found to be non–uniform, especially the size of the shocks. But there are other parameters, notably those that are embedded in the Taylor rule, which are relatively as stable as some household related parameters. These results imply that the size of standard errors for demand, supply, and monetary policy shocks adjust to partially capture the impact of extreme datapoints.

Keywords: small-scale DSGE model; Philippines; Bayesian estimation; historical decomposition (search for similar items in EconPapers)
JEL-codes: E12 E32 E52 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://pre.econ.upd.edu.ph/index.php/pre/article/view/1009/919 (application/pdf)

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:phs:prejrn:v:58:y:2021:i:1and2:p:14-37

Access Statistics for this article

More articles in Philippine Review of Economics from University of the Philippines School of Economics and Philippine Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by HR Rabe ().