COVID-19 and Emerging Markets: An Epidemiological Model with International Production Networks and Capital Flows

IMF Working Papers, July 17, 2020

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Canonical URL: COVID-19 and Emerging Markets: An Epidemiological Model with International Production Networks and Capital Flows

Authors: Cem Cakmakli, Selva Demiralp, Sebnem Kalemli-Ozcan, Sevcan Yesiltas, Muhammed A. Yildirim
Published: July 17, 2020
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781513550183.001

Title: COVID-19 and Emerging Markets: An Epidemiological Model with International Production Networks and Capital Flows
Authors: Cem Cakmakli, Selva Demiralp, Sebnem Kalemli-Ozcan, Sevcan Yesiltas, Muhammed A. Yildirim
Date: July 17, 2020
Abstract summary:
- Calibrates a SIR-multi-sector-macro model for a small open economy to quantify macroeconomic effects of COVID-19.
- Measures sectoral supply shocks using teleworking and physical job proximity.
- Measures demand shocks using credit card purchases.
- Both supply and demand shocks are affected by changing infection rates under different lockdown scenarios.
- Openness amplifies economic costs through two channels: demand shock having domestic and external components, and magnification via domestic and international input-output linkages.

Model framework:
- SIR-multi-sector-macro model for a small open economy.
Measurement of shocks:
- Supply shocks: teleworking and physical job proximity metrics.
- Demand shocks: credit card purchases.
Scenario variation:
- Infection rates change under different lockdown scenarios, affecting both supply and demand shocks.
Channels highlighted for amplification in an open economy:
- Demand shock decomposed into domestic and external components.
- Initial shock magnified through domestic and international input-output linkages.

Main quantitative and qualitative findings:
- The model quantifies macroeconomic effects of COVID-19 for a small open economy (no numerical macro estimates provided on the landing page beyond publication metadata).
- Being an open economy amplifies economic costs via:
- Demand shock having domestic and external components.
- Magnification of the initial shock through domestic and international input-output linkages.

Policy-relevant themes and areas analyzed:
- COVID-19, Demand elasticity, Economic theory, External debt, Health, Labor, Monetary policy, Population and demographics, Unconventional monetary policies.
Keywords signaling policy relevance:
- closed economy, COVID-19, Debt Monetisation, debt monetization, Demand elasticity, economic cost, Emerging Markets, External Finance, foreign currency, Global, inflation rate, Input-Output Tables, monetary policy, open economy, SIR, stimulus package, supply and demand, swap line, total output, Unconventional monetary policies, utility function, WP