Using Macrofinancial Models to Simulate Macroeconomic Developments During the COVID-19 Pandemic: The Case of Albania

ABSTRACT

The COVID-19 pandemic, and its impact on the economy tested the capacity of current macroeconomic models to forecast economic developments in turbulent times. In this article, we develop a linear macrofinancial model for Albania and examine whether it can predict the developments of key macroeconomic and financial variables during 2020-2021. To address increased uncertainty in the forecasts, we construct uncertainty bands with quantile regressions. The results indicate that, in general, a linear model is flexible enough to analyze non-linear events and may thus be used in abnormal times.