Global models for a global pandemic: The impact of COVID-19 on small euro area economies

We analyse the COVID-19 pandemic shock on small open economies (SOEs) in the euro area in a unified modelling framework: the Euro Area and the Global Economy model. We find strong negative international spillovers affecting each of the modelled SOEs, stemming not only from the rest of the euro area, but also from the United States and the rest of the world. A lower bound on nominal interest rates in the euro area amplifies these spillovers, especially within the euro area. Furthermore, we find some positive spillovers from the fiscal measures implemented in the Euro area to combat the pandemic, including the new Next Generation EU instrument.

Automated summary

In this study, we analyze the impact of the COVID-19 pandemic on small open economies (SOEs) in the euro area using a unified modeling framework. Our findings show strong negative international spillovers affecting the modelled SOEs, not only from the euro area but also from the United States and the rest of the world. The lower bound on nominal interest rates in the euro area amplifies these spillovers, particularly within the euro area. Additionally, we find positive spillovers from the fiscal measures implemented in the euro area to combat the pandemic, including the new Next Generation EU instrument.