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Title: The covid-induced uncertainty shocks Authors:  Mirela Sorina Miescu - Lancaster University (United Kingdom) [presenting]
Raffaele Rossi - Manchester University (United Kingdom)
Abstract: The causal effects of Covid-induced economic uncertainty within a daily structural VAR of the US, over the sample January-July 2020, are estimated. The key identifying assumption is that uncertainty shocks are heteroskedastic, so that they have especially high variance on days when there are important announcements about the pandemic. We find that Covid-induced uncertainty shocks lead to a significant contraction of economic and financial indicators. Monetary policy reacts promptly to this increase in uncertainty. We also find important distributional effects: in the face of an increase of Covid-induced uncertainty, low-income households suffer a contraction in employment twice as large as the high-income households, while expenditure of the richest top quartile contracts 40\% more than that of the bottom quartile. Finally, we show that industries which rely on face-to-face interactions, such as entertainment and hospitality, see a reduction in their revenues more than three times larger than industries that can operate remotely, such as business services.