Scarring Body and Mind: The Long-Term Belief-Scarring Effects of COVID-19

Abstract

The views expressed are those of the authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, the Board of Governors, or the National Bureau of Economic Research. We thank Dean Corbae and Pablo D'Erasmo for sharing data on corporate defaults. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w27439.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Are Happier People More Compliant? Global Evidence From Three Large-Scale Surveys During Covid-19 Lockdowns

“…Our paper contributes to a steadily growing stream of literature on the determinants of compliance behaviour during Covid-19 lockdowns, including, amongst others, sociodemographic factors (Brough et al, 2020;Brown and Ravallion, 2020;Papageorge et al, 2020), beliefs and expectations (Akesson et al, 2020;Briscese et al, 2020;Kozlowski et al, 2020), trust and social capital (Bargain and Aminjonov, 2020;Bartscher et al, 2020;Brodeur et al, 2020), and political partisanship (Alcott et al, 2020;Golstein and Wiedemann, 2020;Simonov et al, 2020), and the type of state and local policies, for example state-of-emergency declarations, stay-at-home restrictions, or industry-specific restrictions (Cronin and Evans, 2020). Here, the authors found that private, self-regulating behaviour explained more than three-quarters of the decline in foot traffic in most industries.…”

The Value of a Cure: An Asset Pricing Perspective

“…While we do not model credit markets in our setup, our differentiating novel features are: construction of a vaccine progress indicator and estimation of its joint relationship with stock markets, and mapping it into a general equilibrium regime-switching model of pandemics with asset prices in order to derive an estimate of the value of a cure. Kozlowski et al (2020) model learning effects that lead to long-term scarring after the pandemic is over as policy responses relating to debt forgiveness in the current pandemic can lead to lower leverage and consumption in the post-pandemic era. Collin-Dufresne et al (2016) show that learning can amplify the pricing of macroeconomic shocks when the representative agent has Epstein-Zin preferences and Bayesian updating.…”

Pandemics, Vaccines and Corporate Earnings

“…Overall, our findings point to earnings returning to normal when a vaccine arrives in the middle of 2021, and hence an optimistic vaccine scenario is priced in stock markets. It is important to keep in mind that these forecasts might be wrong to the extent learning effects after disasters could lead to long-term scarring even after a vaccine arrives (see Kozlowski, Veldkamp, and Venkateswaran (2020) for possibility of scarring in COVID-19 or Hong, Wang, and Yang (2020b) for disasters more generally due to higher taxes to pay for mitigation in preparation for the next disaster).…”