Estimating the Impact of External Shocks on the ECCU: Application to the COVID Shock

By Vivian Parlak, Gonzalo Salinas, Mauricio Vargas

August 20, 2021

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Vivian Parlak, Gonzalo Salinas, and Mauricio Vargas. Estimating the Impact of External Shocks on the ECCU: Application to the COVID Shock, (USA: International Monetary Fund, 2021) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We measure the impact of frequent exogeneous shocks on small ECCU economies, including changes to global economic activity, tourism flows, oil prices, passport sales, FDI, and natural disasters. Using Canonical-Correlation Analysis (CCA) and dynamic panel regression analysis we find significant effects of most of these shocks on output, while only fluctuations in oil prices have significant effects on inflation. Results also suggest a significant impact of FDI and passport sales on the external balance, a link that CCA identifies as the strongest among all analyzed relations. The model also shows how Covid-19 related shocks lead to substantial contractions in output in all ECCU countries and deterioration of the current account balance in most of them, depending on countries’ tourism dependency.

Subject: Balance of payments, Current account balance, Economic sectors, Environment, Foreign direct investment, Natural disasters, Oil prices, Prices, Tourism

Keywords: Caribbean, Current account balance, ECCU economy, FDI windfall, Foreign direct investment, Global, Natural disasters, Oil prices, Passport sale, Shocks lead, Tourism, Tourism shock

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/218
Stock No:

WPIEA2021218
ISBN:

9781513585413
ISSN:

1018-5941

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