{
  "title": "The Great Lockdown: International Risk Sharing Through Trade and Policy Coordination",
  "publication": "IMF Working Papers, November 13, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2020/11/13/the-great-lockdown-international-risk-sharing-through-trade-and-policy-coordination-49861",
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  "summary": "Voluntary and government-mandated lockdowns in response to COVID-19 have caused causing drastic reductions in economic activity around the world.",
  "sections": [
    {
      "heading": "Research question and model",
      "content": "- Presents a parsimonious two-country-SIR model with some degree of substitutability between home and foreign goods.\n- Examines how voluntary and government-mandated lockdowns in response to COVID-19 cause drastic reductions in economic activity and interact with international trade and containment policies."
    },
    {
      "heading": "Key findings",
      "content": "- Trading partners’ asynchronous entries into the global pandemic induce mutual welfare gains from trade.\n- These gains are realized through exchange rate adjustments that cause a temporary reallocation of production towards the economy with the lowest infection rate at any point in time.\n- International cooperation over containment policies that aim at optimizing global welfare further enhances the ability of countries to exploit trade opportunities to contain the spread of the pandemic.\n- The strategic choice of containment policies across countries is characterized as a prisoners’ dilemma in the Nash game formulation."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Coordination of containment policies can increase global welfare by improving the exploitation of trade-based reallocation opportunities during asynchronous pandemic dynamics.\n- Uncoordinated, strategic behavior in containment choices can lead to suboptimal global outcomes due to the prisoners’ dilemma structure; policy coordination mechanisms are therefore welfare-enhancing."
    },
    {
      "heading": "Subject areas and keywords (as provided)",
      "content": "- Subject: Consumption, Consumption taxes, COVID-19, Health, International trade, Labor, National accounts, Taxes, Terms of trade\n- Keywords: Consumption, Consumption taxes, containment policy, cooperation, COVID-19, epidemic, expenditure switching, Global, Great Lockown, home economy, infection externality, optimal containment, possibilities frontier, SIR macro model, Terms of trade, terms of trade adjustment, trade, WP\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/11/13/the-great-lockdown-international-risk-sharing-through-trade-and-policy-coordination-49861"
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    "Authors: Philipp Engler, Nathalie Pouokam, Diego Rodriguez Guzman, Irina Yakadina",
    "Published: November 13, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513560182.001",
    "Presents a parsimonious two-country-SIR model with some degree of substitutability between home and foreign goods.",
    "Examines how voluntary and government-mandated lockdowns in response to COVID-19 cause drastic reductions in economic activity and interact with international trade and containment policies.",
    "Trading partners’ asynchronous entries into the global pandemic induce mutual welfare gains from trade.",
    "These gains are realized through exchange rate adjustments that cause a temporary reallocation of production towards the economy with the lowest infection rate at any point in time.",
    "International cooperation over containment policies that aim at optimizing global welfare further enhances the ability of countries to exploit trade opportunities to contain the spread of the pandemic.",
    "The strategic choice of containment policies across countries is characterized as a prisoners’ dilemma in the Nash game formulation.",
    "Coordination of containment policies can increase global welfare by improving the exploitation of trade-based reallocation opportunities during asynchronous pandemic dynamics.",
    "Uncoordinated, strategic behavior in containment choices can lead to suboptimal global outcomes due to the prisoners’ dilemma structure; policy coordination mechanisms are therefore welfare-enhancing.",
    "Subject: Consumption, Consumption taxes, COVID-19, Health, International trade, Labor, National accounts, Taxes, Terms of trade",
    "Keywords: Consumption, Consumption taxes, containment policy, cooperation, COVID-19, epidemic, expenditure switching, Global, Great Lockown, home economy, infection externality, optimal containment, possibilities frontier, SIR macro model, Terms of trade, terms of trade adjustment, trade, WP",
    "**Working Paper**"
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