Günay, S., Can, G., & Ocak, M. (2021). Forecast of China’s Economic Growth During the COVID-19 Pandemic: A MIDAS Regression Analysis. Journal of Chinese Economic and Foreign Trade Studies. doi: 10.1108/JCEFTS-08-2020-0053
Purpose: This study examines 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/approach: Empirical analyses are conducted through alternative methods such as ordinary least squares (OLS), Markov regime-switching (MRS), and mixed data sampling (MIDAS) regressions. The flexibility of MIDAS regression enables us to employ different variables with quarterly (GDP), monthly (export sales and foreign-exchange reserves), and daily frequencies (foreign exchange rates and Brent oil price).
Findings: The results indicate that the COVID-19 pandemic has had a considerable negative effect on China’s GDP growth, while the dummy variables utilized for the Global Financial Crisis 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 Markov regime-switching regression analysis. According to the forecast results, we expect a recovery in China’s economic growth in the second quarter of 2020.
Originality/Value: This 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. We provide further evidence regarding the performance of MIDAS regression analysis versus alternative methods. Findings obtained shed light for policy makers, corporations, and households to update their consumption, saving, and investment decisions in the chaotic environment of this pandemic.