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Forecast of China’s economic growth during the COVID-19 pandemic: a MIDAS regression analysis

Forecast of China’s economic growth during the COVID-19 pandemic: a MIDAS regression analysis This study aims to examine the effect of the COVID-19 pandemic in comparison to the global financial crisis (GFC) on the gross domestic product (GDP) growth rate of China.Design/methodology/approachEmpirical analyses are conducted through alternative methods such as ordinary least squares, Markov regime switching (MRS) and mixed data sampling (MIDAS) regressions. The flexibility of MIDAS regression enables us to use different variables with quarterly (GDP), monthly (export sales and foreign-exchange reserves) and daily frequencies (foreign exchange rates and Brent oil price).FindingsThe results indicate that the COVID-19 pandemic has had a considerable negative effect on China’s GDP growth, while the dummy variables used for the GFC are found to be insignificant. Further, the forecast accuracy test statistics exhibited a superior performance from MIDAS regression compared to the alternative models, such as MRS regression analysis. According to the forecast results, the authors expect a recovery in China’s economic growth in the second quarter of 2020.Originality/valueThis is one of the earliest studies to examine the effect of the COVID-19 pandemic on the Chinese economy, and to compare the impact of COVID-19 with the GFC. The authors provide further evidence regarding the performance of MIDAS regression analysis vs alternative methods. Findings obtained shed light on policymakers, corporations and households to update their consumption, saving and investment decisions in the chaotic environment of this pandemic. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Chinese Economic and Foreign Trade Studies Emerald Publishing

Forecast of China’s economic growth during the COVID-19 pandemic: a MIDAS regression analysis

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References (54)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1754-4408
eISSN
1754-4408
DOI
10.1108/jcefts-08-2020-0053
Publisher site
See Article on Publisher Site

Abstract

This study aims to examine the effect of the COVID-19 pandemic in comparison to the global financial crisis (GFC) on the gross domestic product (GDP) growth rate of China.Design/methodology/approachEmpirical analyses are conducted through alternative methods such as ordinary least squares, Markov regime switching (MRS) and mixed data sampling (MIDAS) regressions. The flexibility of MIDAS regression enables us to use different variables with quarterly (GDP), monthly (export sales and foreign-exchange reserves) and daily frequencies (foreign exchange rates and Brent oil price).FindingsThe results indicate that the COVID-19 pandemic has had a considerable negative effect on China’s GDP growth, while the dummy variables used for the GFC are found to be insignificant. Further, the forecast accuracy test statistics exhibited a superior performance from MIDAS regression compared to the alternative models, such as MRS regression analysis. According to the forecast results, the authors expect a recovery in China’s economic growth in the second quarter of 2020.Originality/valueThis is one of the earliest studies to examine the effect of the COVID-19 pandemic on the Chinese economy, and to compare the impact of COVID-19 with the GFC. The authors provide further evidence regarding the performance of MIDAS regression analysis vs alternative methods. Findings obtained shed light on policymakers, corporations and households to update their consumption, saving and investment decisions in the chaotic environment of this pandemic.

Journal

Journal of Chinese Economic and Foreign Trade Studies – Emerald Publishing

Published: Mar 16, 2021

Keywords: GDP; Global financial crisis; COVID-19 pandemic; MIDAS regression; MRS regression; China

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