COVID‐19, asset markets and capital flows

John Beirne, Nuobu Renzhi, Eric Sugandi and Ulrich Volz

Pacific Economic Review, 2021, vol. 26, issue 4, 498-538

Abstract: This paper empirically examines the reaction of global financial markets across 38 economies to the COVID‐19 outbreak, with special focus on the dynamics of capital flows across 14 emerging market economies. The effectiveness of fiscal and monetary policy responses to COVID‐19 is also tested. Using daily data over the period January 4, 2010 to August 31, 2020, and controlling for a host of domestic and global macroeconomic and financial factors, we use a fixed effects panel approach and a structural VAR framework to show that emerging markets have been more heavily affected than advanced economies. In particular, emerging economies in Asia and Europe have experienced the sharpest impacts on stock, bond and exchange rates due to COVID‐19, as well as abrupt and substantial capital outflows. Quantitative easing and fiscal stimulus packages mainly helped to boost stock prices, notably for advanced and emerging economies in Asia. Our findings also highlight the role that global factors and developments in the world's leading financial centers have on financial conditions in EMEs. Importantly, the impact of COVID‐19 related quantitative easing measures by central banks in advanced countries extended to EMEs, with significant positive spillovers to EME stock markets in Asia, Europe and Latin America. Going forward, while the ultimate resolution of COVID‐19 may be expected to lead to a market correction as uncertainty declines, our impulse response analysis suggests that there may be persistent effects on bond markets in emerging Europe and on EME capital flows.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/1468-0106.12368

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:pacecr:v:26:y:2021:i:4:p:498-538

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1361-374X

Access Statistics for this article

Pacific Economic Review is currently edited by Kenneth S. Chan and Yin-wong Cheung

More articles in Pacific Economic Review from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().