At a given moment during the month of February, the S&P 500 was down 10% from its historical high. Using the commonly used definition, this meant it was in correction territory. This was considered by some as a healthy correction whereas others argued it might very well mark the beginning of an era of structurally higher volatility. Econometric research and model-based simulations show that the economic impact of equity market corrections is rather small. The stylized facts however show the key role of the reciprocal influence between equity markets and growth expectations. In this respect, particular attention should be devoted to the evolution of the corporate bond spread.
William DE VIJLDER