Deadly Debt Crises: COVID-19 in Emerging Markets / Cristina Arellano, Yan Bai, Gabriel P. Mihalache.

Format:

Book

Author/Creator:

Arellano, Cristina.

Contributor:

National Bureau of Economic Research.

Bai, Yan.

Mihalache, Gabriel P.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27275.

NBER working paper series no. w27275

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Emerging markets have experienced large human and economic costs from COVID-19, and their tight fiscal space has limited the support extended to their citizens. We study the impact of an epidemic on economic and health outcomes by integrating epidemiological dynamics into a sovereign default model. The sovereign's option to default tightens fiscal space and results in an epidemic with limited mitigation and depressed consumption. A quantitative analysis of our model accounts well for the dynamics of fatalities, social distancing, consumption, sovereign debt, and spreads in Latin America. We find that because of default risk, the welfare cost of the pandemic is about a third higher than it is in a version of the model with perfect financial markets. We study debt relief programs and find a compelling case for their implementation. These programs deliver large social gains, improving health and economic outcomes for the country at no cost to international lenders or financial institutions.

Notes:

Print version record

May 2020.