This work introduces an econometric model to predict the short-term evolution of Italian GDP, which combines macroeconomic variables with information on the course of the pandemic. The inclusion of a highly sophisticated epidemiological module in a dynamic macroeconomic factor model delivers both accurate estimates during the pandemic and economic growth scenarios based on different simulated trajectories of the epidemic.
The results show that the predictive ability of the proposed model in the period between August 2020 and March 2021 is higher than what would be obtained by not explicitly taking into account the pandemic variables. Furthermore, the model presented, together with the other econometric tools available at the Bank of Italy, contributes to the accuracy of the Bank's official estimates.
