Understanding Economic Instability during the Pandemic: A Factor Model Approach

Monica Billio, Roberto Casarin and Fausto Corradin

A chapter in The Economics of COVID-19, 2022, vol. 296, pp 1-55 from Emerald Group Publishing Limited

Abstract: This chapter studies the effects of the COVID-19 pandemic on the economic structure of the US and EU economies by measuring its impact on some reference macro-economic variables. We use a factor model approach on a set of variables available at different frequencies (daily, weekly, monthly, and quarterly) and provide evidence of instability in the primary factors driving the economy. A sequential analysis of the factors allows us to evaluate the model's forecasting performance and extract some instability measures based on the factor model's eigenvalues. Finally, we show how to use COVID-related variables, such as policy, economic, and health indicators, to compute conditional forecasts with factor models, and perform a scenario analysis on the variables of interest to understand economic instability.

Keywords: COVID-19; factor models; forecasting; scenario analysis; uncertainty; vector autoregressions (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ceazzz:s0573-855520220000296003

DOI: 10.1108/S0573-855520220000296003

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