Implications of pandemic shocks in the production economy

Shilin Li, Tongtong Li, Jinhong Wang and Jinqiang Yang

Applied Economics, 2024, vol. 56, issue 15, 1801-1816

Abstract: This paper introduces the SIS epidemic model into a production-based economy. We study the asset pricing implications of the interaction between COVID-19’s shock and mitigation policy for the production economy. The mitigation policy could hinder the consumption, while it will prompt an investment slump. The results indicate some trade-offs between mitigating the transmission of the pandemic and economic output varying with different uncertainty of the pandemic. Notably, the risk premium and growth of capital value present an inverse hump-shape with the infection rate.

Date: 2024
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DOI: 10.1080/00036846.2023.2177600

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