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This article examines macroeconomic effects and transmission mechanisms of Covid-19 in Mongolia, a developing and commodity-exporting economy, by estimating a Bayesian structural vector autoregression on quarterly data. We find strong cross-border spillover effects of Covid-19 passing through changes in commodity markets and the Chinese economy. Our estimates suggest that China’s GDP and copper price shocks respectively account for three-fifths and one-fifths of the drop in real GDP in 2020Q1. The recovery observed for 2020Q2-2021Q1 is primarily due to positive external shocks. However, disruptions in credit and labor markets have been sustained in the economy. Two-thirds of the fall in employment in 2021Q1 could be attributed to adverse labor demand shocks. We also reveal novel empirical evidence for the balance sheet channel of the exchange rate, the financial accelerator effects, and an indirect channel of wage shock to consumer price passing through bank credit.

Macroeconomic Effects of Covid-19 in a Commodity-Exporting Economy: Evidence from Mongolia