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

Author/Editor:

Vivian Parlak ; Gonzalo Salinas ; Mauricio Vargas

Publication Date:

August 20, 2021

Electronic Access:

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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.

Series:

Working Paper No. 2021/218

Frequency:

regular

English

Publication Date:

August 20, 2021

ISBN/ISSN:

9781513585413/1018-5941

Stock No:

WPIEA2021218

Pages:

37

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