Aggregate Demand and Aggregate Supply Effects of COVID-19: A Real-time Analysis

Geert Bekaert, Eric Engstrom and Andrey Ermolov ()
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Andrey Ermolov: https://www.fordham.edu/info/22941/full-time_faculty/6973/andrey_ermolov

No 2020-049, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We extract aggregate demand and supply shocks for the US economy from real-time survey data on inflation and real GDP growth using a novel identification scheme. Our approach exploits non-Gaussian features of macroeconomic forecast revisions and imposes minimal theoretical assumptions. After verifying that our results for U.S. post-World War II business cycle fluctuations are largely in line with the prevailing consensus, we proceed to study output and price fluctuations during the COVID-19 pandemic. We attribute two thirds of the decline in 2020:Q1 GDP to a negative shock to aggregate demand. In contrast, regarding the staggeringly large decline in GDP in 2020:Q2, we estimate two thirds of this shock was due to a reduction in aggregate supply. Statistical analysis suggests a slow recovery due to a persistent effects of the supply shock, but surveys suggest a somewhat faster rebound with a recovery in aggregate supply leading the way.

Keywords: Business cycles; COVID-19; Macroeconomic volatility (search for similar items in EconPapers)
JEL-codes: E31 E32 E43 E44 (search for similar items in EconPapers)
Pages: 30 p.
Date: 2020-06-22
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-49

DOI: 10.17016/FEDS.2020.049

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