Hang in There: Stock Market Reactions to Withdrawals of COVID-19 Stimulus Measures
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Summary:
The COVID-19 pandemic prompted unprecedented economic stimulus worldwide. We empirically examine the impact of a withdrawal of fiscal stimulus policies on the stock markets. After constructing a database of withdrawal events, we use event study analysis and cross-country regressions to assess the difference between the pre- and post-event stock price returns. We find that markets react negatively to premature withdrawals—defined as withdrawals at a time when the daily COVID cases are high relative to their historical average—likely reflecting concerns about the withdrawal impact on the prospects for economic recovery. The design of a successful exit strategy from COVID-19 policy responses should account for these concerns.
Series:
Working Paper No. 2020/285
Subject:
Economic sectors Financial crises
Frequency:
regular
English
Publication Date:
December 18, 2020
ISBN/ISSN:
9781513564753/1018-5941
Stock No:
WPIEA2020285
Pages:
22
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