Colombian research offers advice on modelling Covid-19 shock
Pandemic is challenging to model due to its transitory impact, authors say
Economists propose a new method for modelling the Covid-19 shock, in a working paper published by the Central Bank of Colombia.
Camilo Granados and Daniel Parra-Amado note estimates of the output gap must incorporate the pandemic shock without treating the period as representative of economic behaviour.
In the paper, they use a “permanent-transitory decomposition framework” in a structural vector autoregression to isolate the pandemic’s effect. The model is based around the long-run
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