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COVID-19-induced shocks and uncertainty.

Mirela Miescu1, Raffaele Rossi2

  • 1Lancaster University, UK.

European Economic Review
|September 20, 2021
PubMed
Summary

The COVID-19 pandemic caused a significant economic shock, identified through financial market jumps. This shock negatively impacted economic indicators and disproportionately affected industries reliant on in-person interactions, highlighting increased uncertainty.

Area of Science:

  • Economics
  • Financial Markets
  • Pandemic Studies

Background:

  • The COVID-19 pandemic introduced unprecedented economic and financial disruptions globally.
  • Financial markets exhibited significant volatility in response to pandemic-related news.
  • Understanding the precise nature and impact of this economic shock is crucial.

Purpose of the Study:

  • To statistically identify and isolate the economic shock induced by the COVID-19 pandemic.
  • To analyze the impact of this shock on various economic and financial indicators.
  • To characterize the shock as a structural uncertainty shock.

Main Methods:

  • Utilized statistical identification methods to detect large daily jumps in financial markets.
  • Analyzed the correlation between these market jumps and pandemic-related news.
Keywords:
COVID-19Daily SVARHeteroskedasticityUncertainty shocks

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  • Employed impulse response function analysis with diverse identification strategies.
  • Main Results:

    • A distinct COVID-19-induced shock was identified, characterized by significant market volatility.
    • The shock led to the depression of economic and financial indicators.
    • Increased measures of risk and uncertainty were observed, with notable distributional effects across industries.
    • Industries dependent on face-to-face interactions were most severely impacted.

    Conclusions:

    • The statistically identified COVID-19 shock is best interpreted as a structural uncertainty shock.
    • The pandemic's economic impact is multifaceted, affecting indicators, risk, and specific industry sectors.
    • The findings underscore the profound and widespread economic consequences of global health crises.