EconPapers    
Economics at your fingertips  
 

Deadly Debt Crises: COVID-19 in Emerging Markets

Cristina Arellano, Yan Bai () and Gabriel Mihalache ()

No 27275, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The coronavirus pandemic has severely impacted emerging markets by generating a large death toll, deep recessions, and a wave of sovereign defaults. We study this compound health, economic, and debt crisis and its mitigation by integrating epidemiological dynamics into a sovereign default model. The epidemic leads to an urgent need for social distancing measures, a large drop in economic activity, and a protracted debt crisis. The presence of default risk restricts fiscal space and presents emerging markets with a trade-off between mitigation of the pandemic and fiscal distress. A quantitative analysis of our model accounts well for the dynamics of deaths, social distance measures, and sovereign spreads in Latin America. In the model, the welfare cost of the pandemic is higher because of financial market frictions: about a third of the cost comes from default risk, compared with a version of the model with perfect financial markets. We study debt relief programs through counterfactuals and find a compelling case for their implementation, as they deliver large social gains.

JEL-codes: E52 F34 F41 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-mac and nep-ore
Note: EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w27275.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Deadly Debt Crises: COVID-19 in Emerging Markets (2021) Downloads
Working Paper: Deadly Debt Crises: COVID-19 in Emerging Markets (2021) Downloads
Working Paper: Deadly Debt Crises: COVID-19 in Emerging Markets (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27275

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27275
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-07-14
Handle: RePEc:nbr:nberwo:27275