Kamiar Mohaddes Profile picture
Sep 18, 2020 23 tweets 21 min read Read on X
In a recent paper, with Alexander Chudik @DallasFed, M Hashem Pesaran @USCDornsife, @mraissi80 @IMFNews & @arebucci1 @JHUCarey, we develop a threshold-augmented dynamic multi-country model (#TGVAR) to quantify the #macroeconomic effects of #Covid19: econ.cam.ac.uk/research/cwpe-… 1/n Image
Key challenges with the empirical #economic analysis of #Covid19 include the following: how to identify the shock, how to account for its non-linear effects, & how to quantify its effects while accounting for spillovers, common global factors, network effects and uncertainty. 2/n
We contribute to the literature by addressing these issues in a coherent multi-country framework. We offer an identification strategy for the #Covid19 shock considering that a synthetic control method cannot be applied in the context of a global #pandemic. 3/n
Specifically, we use the GDP growth revisions of the International Monetary Fund (IMF) in April and June 2020 compared to their end-2019 forecasts to identify the #Covid19 shock. 4/n
We show that there exist threshold effects in the relationship between global #financial market #volatility and output #growth at individual country levels in a significant majority of advanced economies and in the case of several emerging market countries. 5/n Image
We develop a threshold-augmented dynamic multi-country model (#TGVAR) to estimate the global as well as country-specific #macroeconomic effects of the identified #Covid19 shock. 6/n
We distinguish common global factors from #trade #network effects and account for sample #uncertainty based on the constellation of disturbances that the global #economy had experienced in the past four decades as well as their #spillovers and #interactions. 7/n
Finally, we show how the model can be used for #counterfactual analysis. This approach is very different from scenario analyses or forecasts that are unconditional statements and need not be model based. 8/n
We employ Generalized Impulse Response Functions (GIRFs) to study the #counterfactual impact of the identified #Covid19 shock on the global #economy as well as on the 33 individual countries in our sample. 9/n Image
In linear models, GIRFs possess the following key features: (i) proportionality (namely, potential outcomes are linear in the size of the shock); (ii) state independence (that is, the effects of the shocks do not vary in recessions or expansions); & (iii) model invariance... 10/n
...(namely, the underling model is invariant to the shock under consideration). However, none of these features apply to nonlinear dynamic models, which as argued a priori & established empirically, are more likely to be relevant for analysis of large shocks, i.e. #Covid19. 11/n
By using a threshold-augmented dynamic multi-country model (#TGVAR), we are able to allow for (i) non-proportional impacts of large and small shocks; (ii) state-dependency; and (iii) more persistent outcomes. 12/n
Our framework is able to account for various transmission channels, including #trade relationships, as well as #financial & #commodity price linkages. 13/n
This is important at the current juncture, as many countries face a multi-layered shock comprising a #health emergency, domestic economic #disruptions, plummeting external #demand, tighter #financial conditions, and a collapse in #commodity prices. 14/n
Our counterfactual results show that the #pandemic will likely reduce the world real GDP by 3 percent below its model-generated path without the shock by the end of 2021. While #China and other emerging #Asian economies are estimated to be less severely affected... 15/n Image
... the #US, #UK, and several other advanced economies may experience deeper and longer-lasting effects.

Among non-#Asian #emerging market economies, however, the economic impact of #Covid19 varies substantially, depending on domestic factors (economic structures... 16/n Image
... #health preparedness, & #lockdowns) as well as external disturbances (plunging #trade, collapsing #tourism, #capital outflows, falling #commodity prices).

There is a significant degree of #uncertainty around all these counterfactual outcomes which we quantify. 17/n Image
Importantly, our findings underscore the role of spillovers which we quantify for the case of #Sweden considering its different approach toward the #pandemic.

We show that no country is immune to the #economic fallout of the pandemic because of #interconnections. 18/n Image
We also estimate that the #Covid19 pandemic will likely lower long-term interest rates by about 100 basis points below their historical lows in core advanced economies. 19/n Image
In contrast, the impact on long-term interest rates in #emerging market #economies has a wide range, including significant upside #risks, with implications for #debt servicing costs in these economies. 20/n Image
Our findings highlight the importance of policy interventions to restore the normal functioning of #financial markets & adopting other measures (fiscal & liquidity) that can limit bankruptcies of viable firms & support incomes of households, limiting the amount of #scarring. 21/n
Note that with every easing of #SocialDistancing restrictions, the #infection rates could rise again, which would require re-imposition of those restrictions, as we have seen in #Europe and parts of the #UnitedStates lately, dampening #economic activity and #confidence. 22/n
In the Appendix of our paper, we show how more up-to-date information about the pathway of the #Covid19 #pandemic (considering its rarity) can affect our predictions.

Bottom line: worse growth outcomes and longer recoveries. 23/n #TGVAR Image

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More from @KamiarMohaddes

Jun 11, 2021
Super excited to see our paper on #Covid19 #Fiscal Support and its Effectiveness, with Alexander Chudik @DallasFed & @mraissi80 @IMFNews, out in Economics Letters. You can read it (free access) from here: authors.elsevier.com/c/1dDlMbZedt0om #TGVAR 1/n Image
With new variants/waves & reimposition of restrictions in some regions, governments around the world are calling for a careful assessment of the effectiveness of the adopted #Covid19 #fiscal measures before they embark on further easing or tailoring of measures 2/n
The #Covid19 pandemic led to a sharp tightening of global #financial conditions at the acute phase of the crisis and has inflicted large economic losses across the world (see Figure below) ... 3/n Image
Read 28 tweets
Sep 25, 2020
What are the implications of excess global financial market volatility on economic growth? Are there threshold effects in the relationship between growth & excess global volatility for individual countries? How should we model the nonlinear effects in a multi-country setting? 1/n
We answer these questions in recent work with Alexander Chudik @DallasFed, M Hashem Pesaran @USCDornsife @TrinCollCam, @mraissi80 @IMFNews & @arebucci1 @JHUCarey @cepr_org @nberpubs: ideas.repec.org/p/cam/camdae/2… #TGVAR 2/n
The #Covid19 #pandemic has been a shock like no other, initiating simultaneous demand and supply disruptions. In addition, it led to a sharp tightening in global #financial market conditions during the first quarter of 2020. 3/n Image
Read 23 tweets
Jul 3, 2020
Looking forward to chatting with potential @Cambridge_Uni economics candidates later today and answering any questions you have about #economics at #Cambridge (one of the oldest economics faculties in the world) or the wonderful @Kings_College.
Did you know that @Kings_College has a long tradition in #economics?

It has been the home of many great economists, such as Richard Kahn, Nicholas Kaldor, John Maynard Keynes, Arthur Cecil Pigou, Joan Robinson, Richard Stone and Oliver Hart to name a few. Image
Among @Cambridge_Uni Colleges, at King's we currently have one of the largest number of #economics Fellows, including my amazing colleagues Aytek Erdil, @elisafaraglia, @giannitsarou & Hamid Sabourian (with super interesting research interests from macroeconomics to game theory). Image
Read 4 tweets
May 28, 2020
The latest issue of our #MiddleEast #Development Journal is now out, with 9 fantastic papers covering a number of urgent issues in the #MENA region, including #inequality, #SWFs. #trade and the future of #jobs: tandfonline.com/toc/rmdj20/12/… #MEJD @econromesh @ChahirZaki @Hanomics2
Sovereign wealth funds and cross-border investment bias: the case of #Arab countries by Ibrahim Elbadawi @ERFlatest, Raimundo Soto @ucatolica & @ChahirZaki @CairoUniv @EMNESorg: doi.org/10.1080/179381… 1/9 #MEDJ Image
Equivalence scales and the change in poverty levels across time: #Turkish case by Burcay Erus @UniBogazici: tandfonline.com/doi/full/10.10… 2/9 #MEDJ Image
Read 10 tweets
May 20, 2020
Like my friend Thomas, I keep getting sent articles about our teaching @Cambridge_Uni next academic year and people emailing to ask about the articles, please don’t jump to conclusions! 1/n
Sorry, started the thread and then had to go back to #homeschooling, but back now 😀 2/n
First of all this about large scale lectures. They will be online. But surely all other universities will do the same?! 3/n
Read 5 tweets
May 15, 2020
Just had our first virtual International #Iranian Economic Association (IIEA) Board Meeting. Great to connect with Board members from #Virginia, #Ohio, #Massachusetts, #Germany, #Qatar, #NewJersey, #California & the #UK. Look out for interesting #IIEA webinars soon. ImageImage
Due to the novel #coronavirus (#COVID19) pandemic , the IIEA Board has reluctantly decided to postpone the Seventh International Conference on #Iran’s Economy (#IIEA2020) originally planned to be held at the Middle Eastern Studies Department, @CHSS_HBKU, @HBKU. #اقتصاد #ایران
In due course, we shall issue a new call for papers for the Seventh International Conference on #Iran’s Economy, which is planned to be held in 2021 (#IIEA2021). #اقتصاد #ایران Image
Read 4 tweets

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