Investigation of the Economic Impact of the COVID-19 Outbreak with Sectoral and General Uncertainty Indices and Sectoral Emergency Measures Recommendations

The project has two main objectives. First of all, it is aimed to create economic uncertainty indices on a sectoral and general basis with the Principal Components Analysis (PCA) method and thus to obtain an important tool in policy making. Then, it is aimed to analyze the economic impact of the COVID-19 epidemic with these uncertainty indices. The created economic uncertainty indices show sudden increases in important political and economic events in Turkey. In other words, the uncertainty indices created can precisely measure the uncertainty increases that significantly affect real activity. In the second part of the project, the impact of the COVID-19 epidemic on the real economy was analyzed through uncertainty indices. With the structural vector auto regression (SVAR) models created, the effect of uncertainty on both total industrial production and production in each sector is shown and discussed. The results show that an increase in uncertainty lowers real activity. This result empirically supports the argument that theoretical uncertainty will slow down the economy. The uncertainty created by COVID-19 caused the highest and sudden increase in uncertainty in all time and had a severe negative impact on real activity. The sensitive uncertainty indices we have created will be an important auxiliary tool for making more effective decisions in policy making. For example, during shocks such as COVID-19, where uncertainty has increased excessively, it can be seen through the indices that the policies implemented have an increasing or decreasing effect on uncertainty. In this way, dynamic decisions can be made in policy making. It is certain that, together with the short-time working allowance and the ban on dismissal, direct supports given to workers who cannot benefit from these will contribute to the prevention of sectoral employment loss in Turkey. However, in case of production loss at the estimated levels in the project, sector-specific supports will need to be created in order for the companies to produce at a similar capacity before the epidemic and to ensure the continuity of employment after the epidemic. After the epidemic, policies that will reduce sectoral uncertainties should be brought to the agenda again.