Untangling crises: GFC and COVID-19 through the lens of a DSGE model
In this paper, we aim to compare the anatomy of the impact of the COVID-19 outbreak and the Great Financial Crisis (GFC) in the context of an emerging market economy. To this end, we develop a small open economy DSGE model with the Bernanke-Gertler-Gilchrist financial accelerator that features finan...
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Format: | Article |
Language: | English |
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Elsevier
2023-06-01
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Series: | Latin American Journal of Central Banking |
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Online Access: | http://www.sciencedirect.com/science/article/pii/S2666143823000121 |
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author | Rogelio De La Peña Ignacio García |
author_facet | Rogelio De La Peña Ignacio García |
author_sort | Rogelio De La Peña |
collection | DOAJ |
description | In this paper, we aim to compare the anatomy of the impact of the COVID-19 outbreak and the Great Financial Crisis (GFC) in the context of an emerging market economy. To this end, we develop a small open economy DSGE model with the Bernanke-Gertler-Gilchrist financial accelerator that features financial frictions and monopolistic competition. Then, we estimate this model to explore and compare both crises in the Mexican business cycle. The decomposition obtained with the model shows that: (i) the financial shocks were the main source of contraction of the output gap (around 49.0%) in the GFC; (ii) the dynamic of the GDP had been severely affected by the demand shock (around 45.1%), the financial shocks (32.2%), and the productivity shock (22.3%) in the COVID-19 pandemic. The results suggest that the main forces of the recent contraction in economic activity in Mexico were larger in absolute terms and more diverse than those observed during the GFC. This analysis illustrates the differences between the two great crises and it evaluates the policy response to each. |
first_indexed | 2024-03-13T06:18:33Z |
format | Article |
id | doaj.art-4e7844d233f442ea85643646e2ae41a9 |
institution | Directory Open Access Journal |
issn | 2666-1438 |
language | English |
last_indexed | 2024-03-13T06:18:33Z |
publishDate | 2023-06-01 |
publisher | Elsevier |
record_format | Article |
series | Latin American Journal of Central Banking |
spelling | doaj.art-4e7844d233f442ea85643646e2ae41a92023-06-10T04:28:34ZengElsevierLatin American Journal of Central Banking2666-14382023-06-0142100091Untangling crises: GFC and COVID-19 through the lens of a DSGE modelRogelio De La Peña0Ignacio García1Economic Research Department, Santander Bank, Prol. P.º de la Reforma 500, Santa Fe, Álvaro Obregón, 01376 Ciudad de México, CDMX; Corresponding author.Public Credit Unit, Ministry of Finance, Av. Insurgentes Sur 1971, Guadalupe Inn, Álvaro Obregón, 01020 Ciudad de México, CDMXIn this paper, we aim to compare the anatomy of the impact of the COVID-19 outbreak and the Great Financial Crisis (GFC) in the context of an emerging market economy. To this end, we develop a small open economy DSGE model with the Bernanke-Gertler-Gilchrist financial accelerator that features financial frictions and monopolistic competition. Then, we estimate this model to explore and compare both crises in the Mexican business cycle. The decomposition obtained with the model shows that: (i) the financial shocks were the main source of contraction of the output gap (around 49.0%) in the GFC; (ii) the dynamic of the GDP had been severely affected by the demand shock (around 45.1%), the financial shocks (32.2%), and the productivity shock (22.3%) in the COVID-19 pandemic. The results suggest that the main forces of the recent contraction in economic activity in Mexico were larger in absolute terms and more diverse than those observed during the GFC. This analysis illustrates the differences between the two great crises and it evaluates the policy response to each.http://www.sciencedirect.com/science/article/pii/S2666143823000121E32E44G01G20G21 |
spellingShingle | Rogelio De La Peña Ignacio García Untangling crises: GFC and COVID-19 through the lens of a DSGE model Latin American Journal of Central Banking E32 E44 G01 G20 G21 |
title | Untangling crises: GFC and COVID-19 through the lens of a DSGE model |
title_full | Untangling crises: GFC and COVID-19 through the lens of a DSGE model |
title_fullStr | Untangling crises: GFC and COVID-19 through the lens of a DSGE model |
title_full_unstemmed | Untangling crises: GFC and COVID-19 through the lens of a DSGE model |
title_short | Untangling crises: GFC and COVID-19 through the lens of a DSGE model |
title_sort | untangling crises gfc and covid 19 through the lens of a dsge model |
topic | E32 E44 G01 G20 G21 |
url | http://www.sciencedirect.com/science/article/pii/S2666143823000121 |
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