The impact of COVID-19 on EU economies: a panel VAR analysis

Abstract

This thesis aims to examine the influence of COVID-19 on the members of the European Union’s economies by employing a Panel Vector Autoregression Model (panel-VAR). Economic activity is represented by the leading stock markets and Nitrogen Dioxide (NO2) emissions for every member of the European Union (EU) and the number of new reported infections and government responses were used to quantify the impact of COVID-19 and its most dominant variations, Alpha, Delta and Omicron. We discover that both economic activity proxies are sensitive to the spread of the virus and the government’s response policies in most countries. A sudden increase in the number of cases and tightened government response cause a decline in our two economic indicators, except Austria and Hungary in the case of NO2 emissions. Furthermore, we observe different reactions when introducing the three dominant variations. In the presence of Alpha and Delta variations, the response of stock prices to a shock in cases and GRI is the same, and stock prices fall. On the contrary, when the Omicron variant is dominant, stock prices respond positively to a shock in cases and negatively to a shock in GRI.