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The depth, length and shape of the covid-19 recession conveyed in 2020 growth forecasts

Author

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  • Javier G. Gómez-Pineda

    (Banco de la República de Colombia)

Abstract

With the help of growth forecasts and a simple structural model, we build a likely forward-looking account of the depth, length and shape of the recession as well as of the demand and supply shocks that may be driving it. The results point to an approximately –8 percent deep, V-shaped recession with partial recovery in advanced economies and an approximately –9 percent deep, L-shaped recession in emerging and developing economies. In addition, the projected shapes likely involve, in advanced economies, an output level shock and in emerging and developing economies, an output growth shock. In light of the forecast performance during the 2008 global financial crisis, growth forecasts might be informative about the depth of the recession as soon as 6 months after the beginning of the recession and, in advanced economies, might be informative about the shape of the recession about 12 months after the beginning of the recession. The depth and shape of the recession are important for monetary and fiscal policy analysis. The simple structural model does not have the problem of univariate filters that can misleadingly attribute to demand shocks a large part of output variability that is actually originated in supply shocks. **** RESUMEN: Con la ayuda de pronósticos de crecimiento y de un modelo estructural sencillo, construimos un probable recuento prospectivo de los choques de demanda y oferta que explican la recesión del covid-19, en desarrollo, así como de la profundidad, duración y forma de la recesión. Los resultados indican que en las economías avanzadas la recesión tiene una profundidad aproximadamente de –8 porciento y es en forma de V con recuperación parcial mientras que en las economías emergentes y en desarrollo la recesión es aproximadamente–9 por ciento de profunda y en forma de L. Adicionalmente, la forma proyectada de la recesión probablemente supone en las economías avanzadas un choque al nivel de producto y en las economías emergentes y en desarrollo un choque al crecimiento del producto. A la luz del desempeño de los pronósticos durante la crisis financiera global de 2008, los pronósticos de crecimiento pueden informar sobre la profundidad de la recesión tan pronto como 6 meses después de su comienzo y, en las economías avanzadas, pueden informar sobre la forma de la recesión cerca de 12 meses después de su comienzo. La profundidad y la duración de la recesión en la brecha del producto son importantes en el análisis de las políticas monetaria y fiscal. Los filtros univariados pueden equivocadamente atribuir a choques de demanda una gran parte de la variabilidad del producto que en realidad es originada en choques de oferta.

Suggested Citation

  • Javier G. Gómez-Pineda, 2020. "The depth, length and shape of the covid-19 recession conveyed in 2020 growth forecasts," Borradores de Economia 1123, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1123
    DOI: https://doi.org/10.32468/be.1123
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    References listed on IDEAS

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    1. Warwick McKibbin & Roshen Fernando, 2021. "The Global Macroeconomic Impacts of COVID-19: Seven Scenarios," Asian Economic Papers, MIT Press, vol. 20(2), pages 1-30, Summer.
    2. Balleer, Almut & Zorn, Peter & Link, Sebastian & Menkhoff, Manuel, 2020. "Demand or Supply? Price Adjustment during the Covid-19 Pandemic," CEPR Discussion Papers 14907, C.E.P.R. Discussion Papers.
    3. Pragyan Deb & Davide Furceri & Jonathan D. Ostry & Nour Tawk, 2022. "The Economic Effects of COVID-19 Containment Measures," Open Economies Review, Springer, vol. 33(1), pages 1-32, February.
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    5. David Baqaee & Emmanuel Farhi, 2022. "Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis," American Economic Review, American Economic Association, vol. 112(5), pages 1397-1436, May.
    6. Tom Stannard & Gregorius Steven & Chris McDonald, 2020. "Economic impacts of COVID-19 containment measures," Reserve Bank of New Zealand Analytical Notes series AN2020/04, Reserve Bank of New Zealand.
    7. Enrique Alberola-Ila & Yavuz Arslan & Gong Cheng & Richhild Moessner, 2020. "The fiscal response to the Covid-19 crisis in advanced and emerging market economies," BIS Bulletins 23, Bank for International Settlements.
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    Cited by:

    1. Marcela De Castro-Valderrama & Santiago Forero-Alvarado & Nicolas Moreno-Arias & Sara Naranjo-Saldarriaga, 2022. "Unravelling the Narratives Behind Macroeconomic Forecasts," IHEID Working Papers 18-2022, Economics Section, The Graduate Institute of International Studies.

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    More about this item

    Keywords

    Covid-19 recession; L-shaped recession; V-shaped recession; scarring effects; forecast performance; recesión del covid-19; recesión en forma de L; recesión en forma de V; secuelas de la recesión; desempeño de los pronósticos;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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