Hang in There: Stock Market Reactions to Withdrawals of COVID-19 Stimulus Measures
Author | : Mr.Jorge A Chan-Lau |
Publisher | : INTERNATIONAL MONETARY FUND |
Total Pages | : 22 |
Release | : 2020-12-18 |
ISBN-10 | : 1513564757 |
ISBN-13 | : 9781513564753 |
Rating | : 4/5 (57 Downloads) |
Book excerpt: The COVID-19 pandemic prompted unprecedented economic stimulus worldwide. We empirically examine the impact of a withdrawal of fiscal stimulus policies on the stock markets. After constructing a database of withdrawal events, we use event study analysis and cross-country regressions to assess the difference between the pre- and post-event stock price returns. We find that markets react negatively to premature withdrawals—defined as withdrawals at a time when the daily COVID cases are high relative to their historical average—likely reflecting concerns about the withdrawal impact on the prospects for economic recovery. The design of a successful exit strategy from COVID-19 policy responses should account for these concerns.