Constructing a Positive Shock: Growth Through the Lens of Option Pricing
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Summary:
Low-income economies face negative shocks whose frequency and disproportionate impact overcome growth trajectories, producing a negative drift. COVID-19 was the latest such episode. To escape this negative drift, and build a durable recovery, there is a need for a counter-balancing force: to construct a positive shock. Growth is realized through decisions that fall under two categories, routine and non-linear. While routine decisions modify existing economic behavior along the same path, non-linear decisions describe riskier options that involve transformation. Option pricing theory can be useful to describe the latter, and construct the positive shock required to escape the negative drift.
Series:
Working Paper No. 2023/152
Subject:
Asset prices COVID-19 Health National accounts Prices Return on investment
Frequency:
regular
English
Publication Date:
July 28, 2023
ISBN/ISSN:
9798400246340/1018-5941
Stock No:
WPIEA2023152
Format:
Paper
Pages:
27
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