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Macrofinancial information on the post- COVID-19 economic recovery: will it be V, U or L-shaped?

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  • De Backer, Bruno
  • Dewachter, Hans
  • Iania, Leonardo

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

Abstract

We use a standard macrofinancial no-arbitrage term structure model to forecast key macroe-conomic variables such as GDP. Simple adaptations to the model are proposed in order to generate plausible forecasts in the context of the COVID-19 crisis. The financial market variables included in the model are shown to improve GDP forecasts. The model forecasts of real GDP conditioned on macrofinancial information up to August 2020 suggest that the shape of the recovery will most likely be between a U and an L in most euro area countries considered, with substantial persistent losses.

Suggested Citation

  • De Backer, Bruno & Dewachter, Hans & Iania, Leonardo, 2021. "Macrofinancial information on the post- COVID-19 economic recovery: will it be V, U or L-shaped?," LIDAM Discussion Papers LFIN 2021002, Université catholique de Louvain, Louvain Finance (LFIN).
  • Handle: RePEc:ajf:louvlf:2021002
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    Cited by:

    1. Cugno, Monica & Castagnoli, Rebecca & Büchi, Giacomo & Pini, Marco, 2022. "Industry 4.0 and production recovery in the covid era," Technovation, Elsevier, vol. 114(C).
    2. Iyer, Subramanian Rama & Simkins, Betty J., 2022. "COVID-19 and the Economy: Summary of research and future directions," Finance Research Letters, Elsevier, vol. 47(PB).
    3. Xin‐Xin Zhao & Jun Wen & Xing‐Yun Zou & Quan‐jing Wang & Chun‐Ping Chang, 2023. "Strategies for the sustainable development of China in the post‐epidemic era," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(1), pages 426-438, February.

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    More about this item

    Keywords

    COVID-19 ; shape of the recovery ; term structure ; sovereign yields;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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