COVID-19 Puzzles: A Resolution

50 Pages Posted: 31 Oct 2022 Last revised: 1 Nov 2022

See all articles by Tony Berrada

Tony Berrada

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Jerome Detemple

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

Marcel Rindisbacher

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

Date Written: October 28, 2022

Abstract

This paper examines the economic impact of COVID-19 in an equilibrium framework. Our model, BDRA-SSL, combines two ingredients: (i) beliefs-dependent preferences for economic dynamics and (ii) stochastic SEIRD model with unpredictable birth and vaccine discovery events, and mitigating policy and behavioral responses, for disease propagation. We estimate the model based on economic time series and COVID-19 data. We show it explains the behaviors and levels of the S&P 500, the index volatility, and the number of new cases during the recent outbreak, while providing a good match for 25 unconditional moments of economic time series. Beliefs-dependence emerges as a critical ingredient for this comprehensive explanation of short term dynamics during the COVID-19 outbreak and of long run statistical properties. A comparison study establishes the performance of BDRA-SSL versus alternative specifications.

Keywords: COVID-19, SEIRD, shelter-in-place, jumps, beliefs-dependent preferences, stock market, equity premium, volatility, correlation, consumption, unemployment

JEL Classification: G13

Suggested Citation

Berrada, Tony and Detemple, Jerome and Rindisbacher, Marcel, COVID-19 Puzzles: A Resolution (October 28, 2022). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.4260836

Tony Berrada

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Jerome Detemple (Contact Author)

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353-4297 (Phone)
(617) 353 6667 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Marcel Rindisbacher

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617 353 4152 (Phone)
617 353 999 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

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