Working Paper: CEPR ID: DP15154
Authors: Sebnem Kalemli-Ozcan; Cem Akmakl; Selva Demiralp; Sevcan Yesiltas
Abstract: We quantify the macroeconomic effects of COVID-19 for a small open economy. We use a two country framework combined with a sectoral-SIR model to estimate the effects of collapses in foreign demand and supply. The small open economy suffers from domestic demand and supply shocks due to its own pandemic. In addition, there are external shocks coming from rest of the world (country two). Aggregate exports of the small open economy go down when foreign demand goes down, and aggregate imports suffer from lockdowns in the rest of the world. Wecalibrate the model to Turkey. Our results show that the optimal policy, which yields the lowest output loss and saves the maximum number of lives, for the small open economy, is an early and globally coordinated full lockdown of 39 days.
Keywords: globalization; infections; external finance; IO tables; sectoral heterogeneity
JEL Codes: E61; F00; C51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign demand shocks (F41) | declines in aggregate exports (F14) |
| lockdowns in other countries (F69) | impact aggregate imports (F14) |
| globally coordinated full lockdown (F60) | minimize output losses (D21) |
| globally coordinated full lockdown (F60) | maximize lives saved (J17) |
| partial lockdowns (H77) | more negative labor supply shocks (J49) |
| higher infection rates (I14) | more negative labor supply shocks (J49) |
| costs of lives lost due to infections (J17) | increase economic costs associated with lockdowns (F69) |