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Beirne, John, Renzhi, Nuobu, Sugandi, Eric and Volz, Ulrich (2021) 'COVID-19, Asset Markets and Capital Flows.' Pacific Economic Review, 26 (4). pp. 498-538.

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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.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > Department of Economics
ISSN: 14680106
Copyright Statement: This is the peer reviewed version of the article from Pacific Economic Review, 26 (4). pp. 498-538 (2021), published by Wiley. The Version of Record is at: https://doi.org/10.1111/1468-0106.12368. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
DOI (Digital Object Identifier): https://doi.org/10.1111/1468-0106.12368
Date Deposited: 15 Aug 2021 09:17
URI: https://eprints.soas.ac.uk/id/eprint/35444

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