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COVID-19 and Emerging Markets: The Case of Turkey


  • Cem Cakmakli

    (Koç University)

  • Selva Demiralp

    (Koç University)

  • Sebnem Kalemli Ozcan

    (University of Maryland, NBER and CEPR)

  • Sevcan Yesiltas

    (Koç University)

  • Muhammed Ali Yildirim

    (Koç University & Center for International Development at Harvard University)


The COVID-19 crisis can turn into the biggest emerging market (EM) crisis ever. EMs are observing record capital outflows and depreciating currencies, while trying to come up with fiscal resources necessary to fight the pandemic. This paper focuses on a large EM, Turkey. Turkey provides us with a good laboratory given its low foreign currency reserves, high foreign currency debt and a questionable record on monetary policy credibility, all of which are the characteristics of several EMs. We develop a simple framework incorporating a SIR model in a reduced form economic model. We proxy supply shocks with a measure that synthesizes infection rates with teleworkers, physical job proximity and lockdown policies. Demand shocks are captured with credit card purchases. We also incorporate the fact that Turkey is a small open economy with trade linkages. Our estimates show that the lowest economic cost, which saves the maximum number of lives, can be achieved under an immediate full lockdown. Partial lockdowns, which is the current policy, amplify the economic toll because the normalization takes longer. We highlight that it is necessary for the economic units to be compensated during the lockdown and yet Turkey’s policy options are limited given its low fiscal space, and reliance on capital flows that require both external and domestic funding. The external funds can be secured through international financial institutions. On the domestic front, the Turkish Central Bank can provide funding with a well-targeted and transparent asset purchase program (QE). As an example of such a policy, we provide the details of a successful historical episode: Turkish Central Bank monetized the government debt with a clearly communicated disinflation program under an IMF Stand-By Agreement, in the aftermath of 2001 triple crisis (banking, sovereign, balance of payments).

Suggested Citation

  • Cem Cakmakli & Selva Demiralp & Sebnem Kalemli Ozcan & Sevcan Yesiltas & Muhammed Ali Yildirim, 2020. "COVID-19 and Emerging Markets: The Case of Turkey," Koç University-TUSIAD Economic Research Forum Working Papers 2011, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:2011

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    Cited by:

    1. Cem Çakmaklı & Selva Demiralp & Ṣebnem Kalemli-Özcan & Sevcan Yesiltas & Muhammed A. Yildirim, 2020. "COVID-19 and Emerging Markets: A SIR Model, Demand Shocks and Capital Flows," NBER Working Papers 27191, National Bureau of Economic Research, Inc.

    More about this item


    COVID-19; Financial Crisis; SIR; Input-Output Tables; Emerging Markets.;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F00 - International Economics - - General - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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