Estimating the Impact of External Shocks on the ECCU: Application to the COVID Shock

Author: Vivian Parlak, Mr. Gonzalo Salinas, and Mr. Mauricio Vargas

Volume/Issue: Volume 2021 Issue 218

Publication date: August 2021

ISBN: 9781513585413

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Topics covered in this book

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Exports and Imports , Economics- Macroeconomics , Economics / General , Industries - Hospitality Travel and Tourism , Natural Disasters , FDI windfall , passport sale , ECCU economy , shocks lead , tourism shock , Oil prices , Tourism , Foreign direct investment , Current account balance , Natural disasters , Global , Caribbean

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Summary

We measure the impact of frequent exogeneous shocks on small ECCU economies, including changes to global economic activity, tourism flows, oil prices, passport sales, FDI, and natural disasters. Using Canonical-Correlation Analysis (CCA) and dynamic panel regression analysis we find significant effects of most of these shocks on output, while only fluctuations in oil prices have significant effects on inflation. Results also suggest a significant impact of FDI and passport sales on the external balance, a link that CCA identifies as the strongest among all analyzed relations. The model also shows how Covid-19 related shocks lead to substantial contractions in output in all ECCU countries and deterioration of the current account balance in most of them, depending on countries’ tourism dependency.