Marco Pagano, Christian Wagner, Josef Zechner, 11 June 2020

Whether COVID-19 will trigger a massive reallocation of capital and labour is a key question for policymakers and investors alike. This column shows that asset markets reveal large cross-sectional differences in the repricing of industries before, during, and after the onset of COVID-19. Firms that are more resilient to social distancing significantly outperformed in the six years before and during the COVID-19 outbreak. Looking into the future, stock options imply that investors require significantly lower returns from more pandemic-resilient firms. Governments would be unwise to ignore these signals, directing public financial resources mainly to prop up ailing low-resilience firms.

Stefano Micossi, 08 October 2019

One important conclusion of Robert Shiller’s influential 2015 book, Irrational Exuberance, is that bubbles are random exogenous phenomena that cannot be foreseen and do not depend on macroeconomic policies. This column introduces a new CEPR Policy Insight which throws light on the root causes of speculative fevers in asset markets and related financial booms and busts. It shows empirical evidence indicating that Shiller may have overlooked the role that lax monetary policy played in triggering financial bubbles in the 2000s by offering investors a perverse promise of ever-increasing asset prices.

Òscar Jordà, Moritz Schularick, Alan M. Taylor, Felix Ward, 25 June 2018

Asset markets in advanced economies have become more integrated than ever before in the history of modern finance. This is especially true for global equities starting in the 1990s. This column argues that this increase in synchronisation is primarily driven by fluctuations in risk appetite rather than in risk-free rates, or in dividends. US monetary policy plays a major role in explaining such fluctuations, and this transmission channel affects economies with both fixed and floating exchange rates, although the effects are more muted in floating rate regimes.

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