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The COVID-19 Recession on Both Sides of the Atlantic: A Model-Based Comparison

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  • Roberta Cardani
  • Philipp Pfeiffer
  • Marco Ratto
  • Lukas Vogel

Abstract

This paper compares the COVID-19 recession in the euro area (EA) and the US using an estimated multiregion New Keynesian macroeconomic model. To capture quarterly dynamics from 2020 onwards, we introduce relevant extensions such as `forced' savings, extensive versus intensive employment margins, and trade in commodities as inputs to production and final demand. Transitory (`forced') savings are central to account for the behaviour of economic activity in both regions during the pandemic, which was strongly driven by private consumption, alongside shocks to domestic demand and foreign activity. The model highlights the importance of demand recovery and rising commodity prices for the inflation acceleration during 2021-22. EA inflation has a stronger supply component (including commodity prices) compared to a stronger demand component in the US.

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  • Roberta Cardani & Philipp Pfeiffer & Marco Ratto & Lukas Vogel, 2023. "The COVID-19 Recession on Both Sides of the Atlantic: A Model-Based Comparison," European Economy - Discussion Papers 191, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:191
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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