Asset Prices and Pandemics: The Effects of Lockdowns
Special issue of Quarterly Journal of Finance 2021
46 Pages Posted: 15 Apr 2021
Date Written: November 28, 2020
We examine the impact of pandemics on equilibrium in an integrated epidemic-economy model with production. Two types of technologies are considered: a neoclassical technology and one capturing the notion of time-to-produce. The impact of a shelter-in-place policy with and without layoffs is studied. The paper documents adjustments in interest rate, market price of risk, stock market and real wage as the epidemic propagates. It shows the qualitative effects of a shelter-in-place policy in the model are consistent with the patterns displayed by the stock market and real wage during the COVID-19 outbreak. Puzzles emerging from the analysis are outlined.
Keywords: Pandemics, SEIRD, equilibrium, stock prices, wages, V-shaped recovery, shelter-in-place, COVID-19
JEL Classification: G10, G12, G19
Suggested Citation: Suggested Citation