Asset Prices and Pandemics
58 Pages Posted: 13 May 2020 Last revised: 4 Sep 2020
Date Written: April 28, 2020
We examine the impact of pandemics propagation mechanisms on equilibrium prices, volatilities, risk premia, interest rate, wages and stock prices in an integrated epidemic-economy model with production. Two types of technologies are examined: a neo-classical technology and one capturing the notion of time-to-produce. Results show the interest rate displays cyclical behavior, wages tend to increase and stock prices can also cycle during an outbreak. The impact of a shelter-in-place policy with and without layoffs is examined. Equilibrium displays cycles under the welfare maximizing shelter-in-place policy.
Keywords: Pandemics, equilibrium, cycles, interest rate, price of risk, returns, wages, stock prices, shelter- in-place, optimal mitigation, welfare, COVID-19
JEL Classification: G10, G12, G19
Suggested Citation: Suggested Citation