When uncertainty invades the mindset of market participants, they tend to put more weight on the worst-case outcomes for the economy and asset valuations.1, 2 In early March, as the scope of the lockdown became apparent, there was a “rush to the exits,” where market participants sold financial assets in a panic.
Cambridge, Mass. : National Bureau of Economic Research, February, https://www.nber.org/papers/w19887.pdf. Rachel, Lukasz, and Thomas D. Smith (2017). “Are Low Real Interest Rates Here to Stay?” International Journal of Central Banking, vol. 13 (September), pp. 1–42, https://www.ijcb.org/journal/ijcb17q3a1.pdf. Roberts, John M. (2006). “Monetary Policy and Inflation Dynamics,” International Journal of Central Banking, vol. 2 (September), pp. 193–230. Simon, John, Troy Matheson, and Damiano Sandri (2013).