Estimating the COVID-19 Shock and the Effectiveness of Pandemic Policies

The economic disruption of the COVID-19 pandemic triggered the deployment of a plethora of conventional and unconventional policies. Whilst the policies, in general, are believed to have prevented a more calamitous economic decline, it has been difficult to disentangle the effectiveness of policies from the counterfactual path of the economy. In this paper we estimate a medium scale DSGE model, with a banking sector, of the Chilean economy and use observed policy responses to extract the underlying shocks characterising the economic effects of the COVID-19 pandemic. We find that GDP contracted by 13.5% less because of the pandemic policies while policies grew the commercial portfolio by an additional 183%, with a limited increase in non-performing loans. Joint paper with J-F. Martínez (Financial Stability Area, Central Bank of Chile), M. U. Peiris (Oberlin College and ICEF HSE University), and Dimitrios. P. Tsomocos (University of Oxford).

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