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COVID-19 and emerging markets: A SIR model, demand shocks and capital flows

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  • Çakmaklı, Cem
  • Demiralp, Selva
  • Özcan, Şebnem Kalemli
  • Yeşiltaş, Sevcan
  • Yıldırım, Muhammed A.

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 (country one) suffers from domestic demand and supply shocks due to its own pandemic. In addition, there are external shocks coming from the rest of the world (country two). Aggregate exports of the small open economy decline 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.

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  • Çakmaklı, Cem & Demiralp, Selva & Özcan, Şebnem Kalemli & Yeşiltaş, Sevcan & Yıldırım, Muhammed A., 2023. "COVID-19 and emerging markets: A SIR model, demand shocks and capital flows," Journal of International Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001113
    DOI: 10.1016/j.jinteco.2023.103825
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    3. Carlos Alba & Gabriel Cuadra & Juan R. Hernandez & Raul Ibarra, 2024. "Capital flows to emerging economies and global risk aversion during the COVID‐19 pandemic," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2804-2836, July.
    4. Enrique G. Mendoza & Eugenio Rojas & Linda L. Tesar & Jing Zhang, 2023. "A Macroeconomic Model of Healthcare Saturation, Inequality and the Output–Pandemia Trade-off," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 243-299, March.
    5. Cristina Arellano & Yan Bai & Gabriel Mihalache, 2023. "COVID-19 Vaccination and Financial Frictions," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 216-242, March.
    6. Domingo Rodríguez Benavides & César Gurrola Ríos & Francisco López Herrera, 2021. "Dependencia de los mercados de valores de Argentina, Brasil y México respecto del estadounidense: Covid19 y otras crisis financieras recientes," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(3), pages 1-18, Julio - S.
    7. Dervis Kirikkaleli & Ibrahim Darbaz, 2021. "The Causal Linkage between Energy Price and Food Price," Energies, MDPI, vol. 14(14), pages 1-13, July.
    8. David J. Haw & Christian Morgenstern & Giovanni Forchini & Robert Johnson & Patrick Doohan & Peter C. Smith & Katharina D. Hauck, 2022. "Data needs for integrated economic-epidemiological models of pandemic mitigation policies," Papers 2209.01487, arXiv.org.
    9. Pierre-Olivier Gourinchas & Ṣebnem Kalemli-Özcan & Veronika Penciakova & Nick Sander, 2021. "Fiscal Policy in the Age of COVID: Does it ‘Get in all of the Cracks?’," NBER Working Papers 29293, National Bureau of Economic Research, Inc.
    10. Cem Cakmakli & Selva Demiralp & Sevcan Yesiltas & Muhammed Ali Yildirim, 2021. "The Role of Obedience and the Rule of Law during the Pandemic," Koç University-TUSIAD Economic Research Forum Working Papers 2103, Koc University-TUSIAD Economic Research Forum.
    11. Salha Ben Salem & Moez Labidi, 2024. "Financial friction and optimal monetary policy: analysis of DSGE model with financial friction and price sticky," SN Business & Economics, Springer, vol. 4(7), pages 1-24, July.
    12. Cristina Arellano & Yan Bai & Gabriel P. Mihalache, 2020. "Deadly Debt Crises: COVID-19 in Emerging Markets," NBER Working Papers 27275, National Bureau of Economic Research, Inc.
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    Keywords

    Global I-O network; Infections; External finance; Sectoral heterogeneity;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F00 - International Economics - - General - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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