Asset Prices and Pandemics: The Effects of Lockdowns

Special issue of Quarterly Journal of Finance 2021

Boston University Questrom School of Business Research Paper No. 3826647

46 Pages Posted: 15 Apr 2021

See all articles by Jerome Detemple

Jerome Detemple

Boston University Questrom School of Business; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Date Written: November 28, 2020

Abstract

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

Detemple, Jerome, Asset Prices and Pandemics: The Effects of Lockdowns (November 28, 2020). Special issue of Quarterly Journal of Finance 2021, Boston University Questrom School of Business Research Paper No. 3826647, Available at SSRN: https://ssrn.com/abstract=3826647 or http://dx.doi.org/10.2139/ssrn.3826647

Jerome Detemple (Contact Author)

Boston University Questrom School of Business ( email )

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