The New York Fed DSGE Model Forecast — June 2020

Editor’s note: The release of the March 2020 DSGE forecast was postponed as New York Fed economists shifted their focus to the COVID-19 pandemic. In conjunction with the release of the June 2020 forecast, we’ve decided to post the March 2020 forecast for the record as well.

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. 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.

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 patterns seen in 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 65, 10, and 25 percent, respectively. These probabilities are informed by the most recent (May) Survey of Professional Forecasters (SPF) probabilistic survey for year-over-year 2020 GDP growth.

The three scenarios we consider are a “Temporary Lockdown” (Scenario 1), a “Lockdown with Business Cycle Dynamics” (Scenario 2), and a “Persistent Demand Shortfall” (Scenario 3). The table below shows the mean Q4/Q4 GDP projections for each scenario, together with the 68 percent forecast bands.

The “Temporary Lockdown” scenario explains the decline in economic activity in Q1 and Q2 of 2020 using transitory demand and supply shocks and intentionally limiting the role of the standard set of shocks that populate the model in these two quarters. This yields a relatively V-shaped recovery, with Q4/Q4 GDP growth in the neighborhood of -4.0 percent.

In the “Lockdown with Business Cycle Dynamics” scenario, we allow for the standard set of shocks to play a larger role, yielding more persistent effects, with Q4/Q4 GDP growth in the neighborhood of -5.2 percent.

Finally, in the “Persistent Demand Shortfall” scenario, the demand shortfall is assumed to persist through Q3, reflecting prolonged weakness in demand. This scenario yields Q4/Q4 GDP growth in the neighborhood of -9.9 percent.

Click here to read the full article on Liberty Street Economics.

How to cite this post:

William Chen, Marco Del Negro, Ethan Matlin, and Reca Sarfati, “The New York Fed DSGE Model Forecast—June 2020,” Federal Reserve Bank of New York Liberty Street Economics, June 19, 2020,


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Ph.D. Student in Economics

I am an Economics Ph.D. candidate at MIT, and former Senior Research Analyst on the dynamic stochastic general equilibrium (DSGE) team in the Macroeconomic and Monetary Studies function at the NY Fed. Views expressed are my own.