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The Covid-19 Recession in Germany: A Macropidemiological Analysis

Author

Listed:
  • Krause, Willi
  • Costa, Luís
  • Costa Filho, João Ricardo

Abstract

What are the drivers of output fluctuations in Germany during the COVID-19 pandemic? We develop a macro-epidemiological model based on the evidence that efficiency and labor wedges are the key distortions in the neoclassical growth model that account for the GDP dynamics during the period. We find that the consumption and laborsupply effects of containment policies and the endogenous responses of households to pandemic-associated health risks can account for almost all weekly dynamics of output in Germany between the first quarter of 2020 and the second quarter of 2021. The containment policies are found to be responsible for especially large output losses during the pandemic, but the endogenous household responses appear to play an important complementary role. We simulate a counterfactual, laissezfaire type of response to the pandemic and find that not only would it not have avoided a sizeable recession either, but it would also lead to substantially higher losses in human life and stress on the German health service.

Suggested Citation

  • Krause, Willi & Costa, Luís & Costa Filho, João Ricardo, 2023. "The Covid-19 Recession in Germany: A Macropidemiological Analysis," Working Papers REM 2023/0290, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp02902023
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0290_2023.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Covid-19; Germany; SIR-Macro; Dynamic General Equilibrium Model; Business Cycle Accounting.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I1 - Health, Education, and Welfare - - Health
    • H0 - Public Economics - - General

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