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Stock Market Response to Covid-19, Containment Measures and Stabilization Policies - The Case of Europe

Author

Listed:
  • Jens Klose

    (THM Business School Giessen)

  • Peter Tillmann

    (Justus-Liebig-University Giessen)

Abstract

Policymakers imposed constraints on public life in order to contain the Covid-19 pandemic. At the same time, fiscal and monetary policy implemented a large range of of expansionary measures to limit the economic consequences of the pandemic and stimulate the recovery. In this paper, we assess the response of the equity market as a high-frequency indicator of economic activity to containment and stabilization policies for 29 European economies. We construct indicators of containment and stabilization policies and estimate a range of panel VAR models. The main results are threefold: First, we find that stock markets are highly responsive to containment and stabilization policies. We show that domestic fiscal policy as well as monetary policy support the recovery as reflected in the stock market. Second, expansionary fiscal policy conducted at the European level reduces rather raises stock prices. Third, we estimate the model over subsamples and show that the counter-intuitive stock market response to EU policies is driven by the responses in medium- and high-debt countries. These countries' stock markets are also particularly susceptible to monetary policy announcements.

Suggested Citation

  • Jens Klose & Peter Tillmann, 2022. "Stock Market Response to Covid-19, Containment Measures and Stabilization Policies - The Case of Europe," MAGKS Papers on Economics 202208, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:202208
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    Cited by:

    1. Klose, Jens, 2023. "European exchange rate adjustments in response to COVID-19, containment measures and stabilization policies," Economic Modelling, Elsevier, vol. 128(C).

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    More about this item

    Keywords

    COVID-19; stabilization policies; lockdown-measures; panel VAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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