COVID-19 and the GDP fall in Germany: A Business Cycle Accounting Approach

Scholl, Christoph (2022): COVID-19 and the GDP fall in Germany: A Business Cycle Accounting Approach.

Abstract

The Business Cycle Accounting method by Chari, Kehoe, and McGrattan (2007) helps identify theories that have quantitative promise in explaining economic fluctuations. In this paper, it will be applied to Germany to study the impact of the COVID-19 pandemic. The efficiency wedge primarily drove Germany’s recession. The extensive lockdowns that prevented existing production factors such as labor and capital from producing at their full potential can explain the productivity loss. This suggests that the lockdowns are well identified as significant drivers of the reduction in economic activity and that their end would predict a sharp recovery in Germany.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomics, Business Cycles, Business Cycle Accounting, COVID-19, Germany, GDP Drop, Recession, Productivity,
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; E - Macroeconomics and Monetary Economics > E0 - General; F - International Economics > F0 - General

References

[1] Aguiar-Conraria, L., Brinca, P., Guðjónsson, H. V., & Soares, M. J. (2017). Business cycle synchronization across US states. The BE Journal of Macroeconomics, 17(1).

[2] Anderton, Robert, Vasco Botelho, Agostino Consolo, António Dias Da Silva, Claudia Foroni, and Matthias Mohr. 2021. “The Impact of the COVID-19 Pandemic on the Euro Area Labour Market,” January. https://www.ecb.europa.eu/pub/economic-bulletin/articles/2021/html/ecb.ebart202008_02~bc749d90e7.en.html.

[3] Balta, Narcissa, Ismael Valdes Fernandez, and Eric Ruscher. 2013. “Assessing the Impact of Uncertainty on Consumption and Investment.” Quarterly Report on the Euro Area (QREA) 12 (2): 7–16.

[4] Baqaee, David, and Emmanuel Farhi. 2020. “Supply and Demand in Disaggregated Keynesian Economies with an Application to the Covid-19 Crisis.” Working Paper 27152. Working Paper Series. National Bureau of Economic Research. https://doi.org/10.3386/w27152.

[5] Bernanke, Ben S. 1983. “Irreversibility, Uncertainty, and Cyclical Investment*.” The Quarterly Journal of Economics 98 (1): 85–106. https://doi.org/10.2307/1885568.

[6] Bofinger, Peter, Sebastian Dullien, Gabriel Felbermayr, Clemens Fuest, Michael Hüther, Jens Südekum, and Beatrice Weder di Mauro. 2020. “Economic Implications of the COVID-19 Crisis for Germany and Economic Policy Measures.” In 18 Economic Implications of the COVID-19 Crisis for Germany and Economic Policy Measures, 167.

[7] Boone, Laurence. 2020. “Trackling the Fallout from COVID-19.” In Economics in the Time of COVID-19.

[8] Bosen, Ralf, and Jens Thurau. 2021. “Chronologie: Ausbreitung des Coronavirus in Deutschland | DW | 23.06.2021.” DW.COM. June 23, 2021. https://www.dw.com/de/chronologie-ausbreitung-des-coronavirus-in-deutschland/a-58003172.

[9] Brinca, Pedro. 2013. “Monetary Business Cycle Accounting for Sweden.” The B.E. Journal of Macroeconomics 13 (1). https://econpapers.repec.org/article/bpjbejmac/v_3a13_3ay_3a2013_3ai_3a1_3ap_3a35_3an_3a29.htm.

[10] Brinca, Pedro. 2014. “Distortions in the Neoclassical Growth Model: A Cross-Country Analysis.” Journal of Economic Dynamics and Control 47 (October): 1–19. https://doi.org/10.1016/j.jedc.2014.07.013.

[11] Brinca, Pedro, V. V. Chari, Patrick J. Kehoe, and Ellen McGrattan. 2016. “Accounting for Business Cycles.” Working Paper 22663. Working Paper Series. National Bureau of Economic Research. https://doi.org/10.3386/w22663.

[12] Brinca, Pedro, and João Costa-Filho. 2021. “Economic Depression in Brazil: The 2014-2016 Fall.” MPRA Paper. April 20, 2021. https://mpra.ub.uni-muenchen.de/107298/.

[13] Brinca, Pedro, and Costa-Filho João. 2021. “Output Falls and the International Transmission of Crises.” MPRA Paper. April 20, 2021. https://mpra.ub.uni-muenchen.de/107297/. [14] Brinca, Pedro; Duarte, João Bernardo and Miguel Faria-e-Castro.2021."Measuring labor supply and demand shocks during COVID-19". European Economic Review, 139, 103901.

[15] Brinca, P., Iskrev, N., & Loria, F. (2022). On identification issues in business cycle accounting models. Advances in Econometrics, Essays in Honor of Fabio Canova, (forthcoming).

[16] Caceres, Carlos, Mai Chi Dao, and Aiko Mineshima. 2021. “Beyond the Pandemic: Five Charts on Germany’s Economic Recovery Plan.” IMF. July 15, 2021. https://www.imf.org/en/News/Articles/2021/07/13/na071521-beyond-the-pandemic-five-charts-on-germanys-economic-recovery-plan.

[17] Camous, Antoine, and Grégory Claeys. 2020. “The Evolution of European Economic Institutions during the COVID‐19 Crisis.” European Policy Analysis 6 (2): 328–41. https://doi.org/10.1002/epa2.1100.

[18] Clemens, Marius, Geraldine Dany-Knedlik, Simon Junker, Claus Michelsen, and Werner Röger. 2021. “DIW Berlin: Mehrwertsteuersenkung hat deutsche Wirtschaft im Corona-Jahr 2020 gestützt.” Text. DIW Berlin. 2021. https://www.diw.de/de/diw_01.c.817849.de/publikationen/diw_aktuell/2021_0062/mehrwertsteuersenkung_hat_deutsche_wirtschaft_im_corona-jahr_2020_gestuetzt.html.

[19] Dorn, Florian, Clemens Fuest, and Florian Neumeier. 2020. “After the Great Economic Collapse: Germany’s Stimulus Package to Recover the Economy in Times of Covid-19.” July 2020. https://www.cesifo.org/en/publikationen/2020/article-journal/after-great-economic-collapse-germanys-stimulus-package-recover.

[20] Eurostat. 2021. “File:Public Balance and General Government Debt, 2017-2020 (1) (% of GDP) Oct 2021.Png.” October 21, 2021. https://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Public_balance_and_general_government_debt,_2017-2020_(%C2%B9)_(%25_of_GDP)_Oct_2021.png.

[21] Federal Statistic Office. 2021. “Business Notifications, Insolvencies.” Federal Statistical Office. November 2021. https://www.destatis.de/EN/Themes/Economic-Sectors-Enterprises/Enterprises/Business-Notifications-Insolvencies/_node.html.

[22] Felbermayr, Gabriel, Julian Hinz, and Hendrik Mahlkow. 2020. “Deutschlands Wirtschaft seit dem Corona-Lockdown.” Research Report Spezial Corona-Update 1. Kiel Policy Brief. https://www.econstor.eu/handle/10419/216908.

[23] Merkel, Angela. 2020. Pressekonferenz von Bundeskanzlerin Merkel zu Maßnahmen der Bundesregierung im Zusammenhang mit dem CoronavirusRede. https://www.bundeskanzlerin.de/bkin-de/aktuelles/pressekonferenz-von-bundeskanzlerin-merkel-zu-massnahmen-der-bundesregierung-im-zusammenhang-mit-dem-coronavirus-1731022.

[24] OECD. 2020. OECD Economic Outlook, Interim Report September 2020. Paris: Organisation for Economic Co-operation and Development. https://www.oecd-ilibrary.org/economics/oecd-economic-outlook/volume-2020/issue-1_34ffc900-en.

[25] Personio. 2020. “Kurzarbeit: Die wichtigsten Fakten.” Personio (blog). April 6, 2020. https://www.personio.de/hr-lexikon/kurzarbeit/.

[26] Pusch, Toralf, and Hartmut Seifert. 2020. “Kurzarbeit in der Corona-Krise mit neuen Schwerpunkten.” September 2020. https://www.boeckler.de/de/faust-detail.htm%3Fsync_id=HBS-007876.

[27] Scholz, Olaf, and Peter Altmaier. 2020. Corona-Schutzschild: Pressekonferenz mit Olaf Scholz zu Milliarden-Hilfen der Bundesregierung - Bundesfinanzministerium - Service. https://bundesfinanzministerium.de/Content/DE/Video/2020/2020-03-13-corona-bundesregierung/2020-03-13-corona-bundesregierung.html.

[28] Schultze, and Braun. 2021. “Corona: Insolvenzantragspflicht wird ausgesetzt.” Schultze & Braun. 2021. https://www.schultze-braun.de/leistungen/corona/insolvenzantragspflicht/.

[29] Šustek, Roman. 2010. “Monetary Aggregates and the Business Cycle.” Journal of Monetary Economics 57 (4): 451–65. https://doi.org/10.1016/j.jmoneco.2010.03.003.

[30] Taylor, John B., and Harald Uhlig. 2016. Handbook of Macroeconomics. Volume 2A. Handbooks in Economics 15. Amsterdam: Elsevier.

[31] Van Der Putten, Raymond. 2020. “Supply chains after Covid-19.” Newsletter BNP Paribas. economic-research.bnpparibas.com. July 8, 2020. http://economic-research.bnpparibas.com/html/en-US/Supply-chains-Covid-19-7/8/2020,39146?docid=39146.

[32] Welle, Deutsche. 2021. “Germany’s 2020 Exports Slumped 9.3% as Pandemic Batters Trade | DW | 09.02.2021.” DW.COM. February 9, 2021. https://www.dw.com/en/germanys-2020-exports-slumped-93-as-pandemic-batters-trade/a-56506934. WHO. 2020. “Coronavirus Disease 2019 (COVID-19): Situation Report 100.” Geneva.

[33] Wollmershäuser, Timo, Marcell Göttert, Christian Grimme, Carla Krolage, Stefan Lautenbacher, Robert Lehmann, Sebastian Link, et al. 2020. “ifo Konjunkturprognose Sommer 2020: Deutsche Wirtschaft – es geht wieder aufwärts.” ifo Schnelldienst 73 (Sonderausgabe): 3–58.

[34] Xu, Zhitao, Adel Elomri, Laoucine Kerbache, and Abdelfatteh El Omri. 2020. “Impacts of COVID-19 on Global Supply Chains: Facts and Perspectives.” IEEE Engineering Management Review 48 (3): 153–66. https://doi.org/10.1109/EMR.2020.3018420.