This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since June 2020.
As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A. Note that interactive charts are now available for DSGE model forecasts.
In response to the pandemic, the New York Fed’s DSGE model has been modified because the economic disruptions caused by COVID-19 are likely different from standard business cycles. The model now includes additional shocks designed to reflect phenomena like lockdowns and social distancing (the model description on the GitHub page describes these changes in some detail). To incorporate the substantial uncertainty surrounding future economic activity, we construct three possible scenarios, described below, that differ in the projected severity of the pandemic and its effects on economic behavior. Our final forecast combines these individual scenarios by weighting them according to our a priori views on how likely each scenario is. The weights on the three scenarios are 80, 10, and 10 percent, respectively. We partly inform these views using the most recent (August) Survey of Professional Forecasters (SPF) probabilistic survey for year-over-year 2020 GDP growth.