Do Stock Markets Play a Role in Determining the COVID-19 Economic Stimulus? A Cross-Country Analysis

Abstract

This paper makes an innovative contribution to the literature by analyzing the determinants of the COVID-19 economic stimulus. In particular, we explore whether the stock market fall observed due to the coronavirus pandemic in many countries around the world can predict the COVID-19 stimulus package. Moreover, we explore whether the level of income can augment the underlying relationship between the stock market fall and the COVID-19 stimulus package. The findings reveal that a larger stock market fall results in a larger stimulus package; however, this effect is only observed in countries having an income level greater than the mean and/or median per capita GDP. Moreover, our results show that monetary policy is more responsive to the stock market fall as compared to fiscal policy. Thus, our results underscore the importance of international donor agencies such as the World Bank and International Monetary Fund in supporting less affluent countries to cope with the adverse impact of the COVID-19 pandemic on their economies.

Keywords: COVID-19, coronavirus pandemic, economic stimulus, stock market fal

JEL Classification: E44, E62, G01, H12