Volatility during the COVID-19 Pandemic

Tony Berrada, Jerome Detemple and Marcel Rindisbacher

No 23-95, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We examine the impact of COVID-19 on market volatility in an equilibrium framework. The model combines beliefs-dependent preferences for economic dynamics and a stochastic SEIRD model with unpredictable birth/vaccine events and mitigating policies for disease propagation. The estimated model explains the realized trajectories of the S&P 500 volatility and number of new cases, identifies the source and composition of the volatility spike, while providing a good match for 25 unconditional moments of economic series. Beliefs-dependence is critical for this comprehensive explanation of short- and long-run properties. A model comparison study is performed. Mitigation policies are examined.

Keywords: volatility; COVID-19; SEIRD; shelter-in-place; jumps; beliefs-dependent preferences; mitigation. (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2023-10
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2395

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