Financial Studies (Sep 2022)
THE ASYMMETRICAL IMPACT OF POLICY RESPONSES ON VOLATILITY OF SOVEREIGN DEFAULT SWAPS
Abstract
The COVID-19 pandemic has adversely influenced economies around the world through supply and demand channels. The increasing uncertainty and the decreasing demand due to the strict social measures of the government to cushion the spread of the pandemic have transformed COVID-19 from a health crisis into an economic crisis. To moderate the negative economic atmosphere during this period, the governments have implemented expansionary fiscal policy. The purpose of this paper is to investigate the impacts of the social and economic measures taken during COVID-19 on the volatility of sovereign credit default swaps for Turkey, Italy, Spain, the United Kingdom, and the United States. The empirical findings indicate that social distancing measures increase uncertainty, but health and economic policies moderate the negative impacts on the economy of Turkey, Spain, and the United Kingdom. The impact of the policies in question is greater in the high number of case regimes.
