ECONOMY VERSUS EPIDEMIOLOGY: AN ANALYSIS OF TRADE-OFF BETWEEN MARKETS AND LIVES IN COVID-19 TIMES

Abstract

The purpose of this research is to assess how the outbreak of the new coronavirus led to the contamination of major industries in the global economy and how the rapid political and fiscal response of several governments triggered and prolonged the recession while trying to save citizens' lives. We also investigated the effect of social distance policies on the level of economic activities and on the prices of stock indexes. Data were collected from stock exchanges on four continents: North America, Africa, Asia and Europe. We extracted information from the stock market on the closing price (PF), lowest price (PB) and highest price (PMA) of the main stock market indicators on the four continents: the FTSE 500 index (United Kingdom); SP 500 (USA); Nikkei 225 (Japan); and the SA Top 40 index (South Africa). In the estimates, we adopted the natural logarithm of each price data to reduce the asymmetry observed in the distribution of stock price data. We concentrated the analysis in the period from January to May 2020, when the coronavirus started to spread to other countries and international markets. We empirically examine the impact of social distance policies on economic activities and on stock market indices. The findings reveal that the increasing number of blocking days, monetary policy decisions and international travel restrictions have severely affected the level of economic activities and the closing, opening, lower and higher share prices of the main stock indexes. On the other hand, the restriction imposed on the domestic movement and the increase in spending on fiscal policies had a positive impact on the level of economic activities, although the growing number of confirmed cases of coronavirus virus did not significantly affect the level of economic activities. The discussion in this article contributes to the literature on financial crisis (eg, Allen & Carletti, 2010; Mian & Sufi, 2010; Stiglitz, 2010; Jagannathan, Kapoor & Schaumburg, 2013), as it shows that non-financial and / or non-economic factors can trigger financial and economic collapse in unprecedented ways. The implication for financial stability is that future tests of resistance to the resilience of international markets must take into account human health factors (epidemiological factors) as an important element in their resistance testing exercises.