Forecasting the Covid-19 Recession and Recovery: Lessons from the Financial Crisis

50 Pages Posted: 22 Sep 2020

See all articles by Claudia Foroni

Claudia Foroni

European Central Bank (ECB)

Massimiliano Giuseppe Marcellino

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Dalibor Stevanović

affiliation not provided to SSRN

Date Written: September, 2020

Abstract

We consider simple methods to improve the growth nowcasts and forecasts obtained by mixed frequency MIDAS and UMIDAS models with a variety of indicators during the Covid-19 crisis and recovery period, such as combining forecasts across various specifications for the same model and/or across different models, extending the model specification by adding MA terms, enhancing the estimation method by taking a similarity approach, and adjusting the forecasts to put them back on track by a specific form of intercept correction. Among all these methods, adjusting the original nowcasts and forecasts by an amount similar to the nowcast and forecast errors made during the financial crisis and following recovery seems to produce the best results for the US, notwithstanding the different source and characteristics of the financial crisis. In particular, the adjusted growth nowcasts for 2020Q1 get closer to the actual value, and the adjusted forecasts based on alternative indicators become much more similar, all unfortunately indicating a much slower recovery than without adjustment and very persistent negative effects on trend growth. Similar findings emerge also for the other G7 countries.

Keywords: Covid-19, forecasting, GDP, mixed-frequency

JEL Classification: C53, E37

Suggested Citation

Foroni, Claudia and Marcellino, Massimiliano and Stevanović, Dalibor, Forecasting the Covid-19 Recession and Recovery: Lessons from the Financial Crisis (September, 2020). ECB Working Paper No. 20202468, Available at SSRN: https://ssrn.com/abstract=3696728

Claudia Foroni (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Massimiliano Marcellino

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Dalibor Stevanović

affiliation not provided to SSRN

No Address Available

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
223
Abstract Views
604
rank
157,488
PlumX Metrics