Working Paper: NBER ID: w27191
Authors: Cem Akmakl; Selva Demiralp; Ebnem Kalemlizcan; Sevcan Yesiltas; Muhammed A. Yildirim
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. We calibrate 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: COVID-19; emerging markets; SIR model; demand shocks; capital flows
JEL Codes: E01; F23; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| full lockdown (Y50) | minimizes output losses (D21) |
| full lockdown (Y50) | maximizes lives saved (J17) |
| coordinated full lockdown (P11) | lower output losses (H21) |
| partial lockdowns (H77) | higher output losses (E23) |
| lack of full lockdown abroad (P33) | greater economic losses (F69) |
| full lockdown lasting 39 days (H12) | reduces infections (I14) |
| coordinated lockdowns (P11) | minimized economic costs (D61) |
| synchronized supply and demand shocks (F41) | lower output losses (H21) |