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Using Macro-Financial Models to Simulate Macroeconomic Developments During the Covid-19 Pandemic: The Case of Albania

Author

Listed:
  • Lorena Skufi

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Adam Gersl

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

Abstract

The recent Covid-19 pandemic has increased the importance of properly forecasting macro-financial developments in turbulent times. Only a limited number of studies focus on how to employ macro-financial models to project key real and financial sector variables under large shocks and unusual assumptions. The aim of this paper is to examine whether a pre-constrained linear model can project the developments seen during the Covid-19 pandemic. We develop a macro-financial model for Albania and, using suitable assumptions, run two types of simulations and compare the results with the outturn. We also take into account the increased forecast risk by constructing uncertainty bands using a quantile regression approach. The results indicate that a linear model is flexible enough to analyse non-linear events and be used in abnormal times, but its precision is lower especially due to the government measures such as repayment moratoria that broke the link between the real and financial sector.

Suggested Citation

  • Lorena Skufi & Adam Gersl, 2022. "Using Macro-Financial Models to Simulate Macroeconomic Developments During the Covid-19 Pandemic: The Case of Albania," Working Papers IES 2022/24, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2022.
    • Handle: RePEc:fau:wpaper:wp2022_24
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    JEL classification:

    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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