Handle with Care: Regulatory Easing in Times of COVID-19

31 Pages Posted: 26 May 2021

See all articles by Fabián Valencia

Fabián Valencia

International Monetary Fund (IMF)

Richard Varghese

International Monetary Fund (IMF)

Weija Yao

International Monetary Fund (IMF)

Juan F. Yépez

International Monetary Fund (IMF)

Date Written: February 1, 2021

Abstract

The policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further ampli-fication of the shock through tighter financial conditions. Using an intraday event study,this paper examines how stock prices—a key driver in financial conditions—reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. The paper finds that overall, regulatory easing announcements contributed to looser financial conditions, but effects varied across sectors and tools. Financial regulatory easing led to lower valuations for financial sector stocks, and higher valuations for non-financial sector stocks, particularly for industries that are more dependent on bank financing. Furthermore, valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation. Effects from non-regulatory financial measures appear to be generally more muted.

JEL Classification: G01, G14, G28, E65, G23, G20, E31, G10

Suggested Citation

Valencia, Fabian V. and Varghese, Richard and Yao, Weija and Yépez, Juan F., Handle with Care: Regulatory Easing in Times of COVID-19 (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3852777 or http://dx.doi.org/10.2139/ssrn.3852777

Fabian V. Valencia (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Richard Varghese

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Weija Yao

International Monetary Fund (IMF) ( email )

Kuwait

Juan F. Yépez

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
14
Abstract Views
122
PlumX Metrics