The Covid-19 Recession in Germany: A Macropidemiological Analysis

Willi Krause, Luis Costa and João Ricardo Costa Filho

No 2023/0290, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

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.

Keywords: Covid-19; Germany; SIR-Macro; Dynamic General Equilibrium Model; Business Cycle Accounting. (search for similar items in EconPapers)
JEL-codes: C63 E27 E32 H0 I1 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
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