The Great Lockdown: International Risk Sharing Through Trade and Policy Coordination

The Great Lockdown: International Risk Sharing Through Trade and Policy Coordination
READ MORE...
Volume/Issue: Volume 2020 Issue 242
Publication date: November 2020
ISBN: 9781513560182
$18.00
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
paperback else
pdf else
epub else
English
Prices in red indicate formats that are not yet available but are forthcoming.
Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Exports and Imports , Economics- Macroeconomics , Taxation - General , Great Lockown , epidemic , trade , optimal containment , cooperation , SIR macro model , WP , containment policy , home economy , expenditure switching , possibilities frontier , infection externality , terms of trade adjustment , COVID-19 , Consumption , Terms of trade , Consumption taxes , Global

Summary

Voluntary and government-mandated lockdowns in response to COVID-19 have caused causing drastic reductions in economic activity around the world. We present a parsimonious two-country-SIR model with some degree of substitutability between home and foreign goods, and show that trading partners’ asynchronous entries into the global pandemic induce mutual welfare gains from trade. Those 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. We show that 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. We characterize the Nash game of strategic choices of containment policies as a prisoners’ dilemma.