It was reported this week that stock markets have suffered their worst quarter since 1987, due to the economic effects of the COVID-19 pandemic.
Professor Roger Farmer, from the Department of Economics, offers his expert analysis and advice to world economies:
“The dramatic drop in stock markets is concerning. The stock market is a not a simple bell-weather of future economic conditions. Market participants are correctly predicting a loss in future earnings. But there is a danger of over reaction that causes a doom-loop of self-fulfilling expectations.
“I have been arguing for more than ten years that treasuries and central banks should intervene to support the price of a broad stock market fund. Now is the time to enact that policy. Jerome Powell has reported that the Fed is considering my proposal. The Bank of England should follow suit.
“By purchasing the stock market at a time when it is badly depleted, the Bank, backstopped by the Treasury, will make substantial gains for the public when the economy returns to health. And during the crisis, my proposal guarantees that the corporate sector will benefit from automatic equity injections at a time when many companies are in danger of bankruptcy.”
3 April 2020
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