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

Cakmaklı, Cem; Demiralp, Selva; Kalemli Ozcan, Sebnem; Yesiltas, Sevcan; Yıldırımk, 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.

Citation

Cakmaklı, C., Demiralp, S., Kalemli Ozcan, S., Yesiltas, S., & Yıldırımk, M. A. (2023). COVID-19 and emerging markets: A SIR model, demand shocks and capital flows. Journal of International Economics, 145, Article 103825. https://doi.org/10.1016/j.jinteco.2023.103825

• Journal Article Type: Article
• Acceptance Date: Sep 26, 2023
• Online Publication Date: Oct 5, 2023
• Publication Date: 2023-11
• Deposit Date: Oct 6, 2023
• Publicly Available Date: Apr 6, 2025
• Journal: Journal of International Economics
• Print ISSN: 0022-1996
• Electronic ISSN: 1873-0353
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 145
• Article Number: 103825
• DOI: https://doi.org/10.1016/j.jinteco.2023.103825
• Public URL: https://durham-repository.worktribe.com/output/1758534