Macro scenario simulator: where a shock lands in the economy
A macro scenario simulator traces how an economic shock, such as a policy tightening, a fiscal boost or an oil shock, would move output, inflation, interest rates and wages over the following quarters. Newral's simulator is a structural model that captures how different households respond to a shock, and it solves for several major economies, including the US and the Euro Area.
The question it answers
If this shock plays out, where does it land (on output, inflation, the policy rate or wages) and how quickly?
How it works
The simulator is built on a structural macroeconomic model rather than on statistical patterns in past data, so it can trace a shock through the economy step by step. It captures the fact that households do not all respond in the same way, which shapes how a shock passes through spending, prices and policy. Each economy is calibrated to published research on that economy. Users choose an economy and a standard scenario: monetary tightening, fiscal boost, productivity slowdown, recession, oil shock or currency shock. The model returns the quarter-by-quarter path of output, inflation, the policy rate, wages and other variables relative to a baseline over a three-year horizon. The paths are model-implied responses to a standardised scenario, not forecasts of the actual economy.
What you see in the portal
- Scenario choice by economy, with the US and the Euro Area listed first
- Peak moves in output, inflation, the policy rate and real wages, with the quarter in which each peaks
- Quarter-by-quarter response paths over a three-year horizon
- Additional paths for consumption and government debt
- Downloadable quarterly data for each scenario
How clients use it
- Pressure-test a macro view by asking where a given shock would bite hardest, and when.
- Compare how the same shock transmits in the US and the Euro Area.
- Frame the rates and growth implications of an energy or currency shock before it shows up in the data.
Frequently asked questions
- What is a macro scenario simulator?
- A macro scenario simulator is a model that shows how an economic shock would work through an economy over time. You choose a shock, such as a rate rise or an oil price spike, and the model returns paths for output, inflation, interest rates and wages relative to a baseline. It answers what-if questions rather than forecasting what will happen.
- How is a scenario simulator different from a forecast?
- A forecast tries to say what will happen. A scenario simulator answers a conditional question: if this shock happens, how would it work through the economy? Newral's simulator holds everything else equal and shows the path of each variable relative to a baseline, so you can see where a shock bites, how hard and for how long, independently of the current outlook.
- Which shocks can the scenario simulator run?
- The simulator offers six standard scenarios: monetary tightening, fiscal boost, productivity slowdown, recession, oil shock and currency shock. The first three are core shocks to policy rates, government spending and productivity. The others combine them to represent broader episodes, such as a stagflation-style oil shock or a currency shock that imports inflation.
- Which economies does the scenario simulator cover?
- The simulator solves for several major economies, including the US and the Euro Area, each calibrated to published research on that economy. Running the same scenario across economies shows how differences in household finances, price setting and policy change where a shock lands and how long it lasts.