Germany’s macroeconomic drivers during the pandemic and inflation surge

Hohbe ge , S e an
A icle — Published Ve sion
Ge many’s mac oeconomic d i e s du ing he pandemic
and in la ion su ge
In e na ional Economics and Economic Policy
P o ided in Coope a ion wi h:
Sp inge Na u e
Sugges ed Ci a ion: Hohbe ge , S e an (2025) : Ge many’s mac oeconomic d i e s du ing he
pandemic and in la ion su ge, In e na ional Economics and Economic Policy, ISSN 1612-4812,
Sp inge , Be lin, Heidelbe g, Vol. 22, Iss. 1,
h ps://doi.o g/10.1007/s10368-024-00651-7
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/319168
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h p://c ea i ecommons.o g/licenses/by/4.0/
In e na ional Economics and Economic Policy (2025) 22:25
h ps://doi.o g/10.1007/s10368-024-00651-7
ORIGINAL PAPER
Ge many’s mac oeconomic d i e s du ing he pandemic
and in la ion su ge
S e an Hohbe ge 1,2
Accep ed: 23 Decembe 2024 / Published online: 15 Janua y 2025
© The Au ho (s) 2025
Abs ac
This pape es ima es a h ee- egion mac oeconomic model o analyse he key d i e s
o Ge many’s GDP, in la ion, and wage g ow h du ing he COVID-19 pandemic and
in la ion su ge. Inco po a ing COVID- ela ed demand and supply shocks, ade in
commodi ies, and endogenous ELB pe iods, he esul s highligh ha (i) he 2020–
2021 down u n was p ima ily d i en by domes ic and global lockdown shocks, (ii) he
2021–2022 in la ion su ge esul ed om ising commodi y p ices, eco e ing global
demand, and supply-side p essu es, and (iii) wage g ow h pe hou was shaped by
opposing demand and supply o ces. The model’s es ima ed shocks closely align wi h
ex e nal indica o s, suppo ing i s empi ical plausibili y.
Keywo ds COVID-19 ·In la ion ·Open-economy DSGE model ·
Bayesian es ima ion ·Ge many
JEL Classi ica ion C51 ·E32 ·E52 ·F41 ·F45
1 In oduc ion
The COVID-19 pandemic and subsequen ene gy c isis ha e led o signi ican mac oe-
conomic consequences o Ge many and he global economy. The immedia e esponse
o COVID-19 h ough he implemen a ion o con ainmen measu es and widesp ead
lockdowns, b ough many economic ac i i ies and in e na ional ade o a hal . As a
consequence, heigh ened unce ain ies, dis up ed global supply chains, and a sha p
decline o domes ic ac i i y accele a ed he economic down u n, leading o a synch o-
nised global ecession in 2020. Simul aneously, go e nmen s olled ou unp eceden ed
iscal s imulus packages. The ene gy c isis in 2021–2022 has ampli ied he su ge in
in la ion, leading o a s ong igh ening o mone a y policy.
BS e an Hohbe ge
s e an.hohbe [email p o ec ed]
1HM Business School, Munich Uni e si y o Applied Sciences, Munich, Ba a ia, Ge many
2Cen e o Applied Mac oeconomic Analysis (CAMA), Aus alian Na ional Uni e si y,
Canbe a, Aus alia
123
25 Page 2 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
This pape analyses he main d i e s o he COVID-19 pandemic and subsequen
in la ion pe iod o Ge many h ough he lens o an es ima ed s uc u al mac oeco-
nomic model. The model is a h ee- egion mone a y union DSGE model, consis ing
o Ge many (DE), he es o he eu o a ea (REA), and he es o he wo ld (RoW).
Following he app oach o Ca dani e al. (2022a), he model inco po a es se e al
COVID- ela ed demand and supply shocks o accoun o he lockdown-imposed d op
in consump ion, iscal s imulus packages, o sho - ime wo k a angemen s. Addi ion-
ally, he model ex ends he use o commodi ies o accoun o he impac o ising
commodi y p ices du ing 2021–2022 along he lines o Gio annini e al. (2019).
The model is es ima ed using a pa allelised slice sampling algo i hm wi h da a o e
he pe iod 1999q1–2023q4. Inco po a ing a la ge numbe o ime se ies in o ma ion
(obse ables) in he es ima ion p ocess in ol es a la ge numbe o shocks, bu allows
o assess he main d i e s o mac oeconomic a iables and o p o ide a plausible
na a i e o economic de elopmen s. Addi ionally, he model allows o endogenous
occasionally binding cons ain s o accoun o e ec i e lowe bound (ELB) pe iods
du ing he COVID-19 pandemic.
The es ima ion esul s highligh he pi o al ole o ansi o y lockdown shocks in
d i ing Ge many’s economic con ac ion and eco e y du ing 2020–2021, wi h iscal
policy measu es p o iding signi ican s abilisa ion. The GDP eco e y in 2021–2023
shows o se ing e ec s be ween domes ic and o eign demand no malisa ion and a
slowdown in in e na ional ade, alongside g owing supply chain bo lenecks. The
su ge in CPI in la ion in 2021–2022 is la gely d i en by domes ic and global supply-
side dis up ions and ising commodi y p ices. Ad e se p oduc i i y and supply shocks
e lec globalsupplychainandcapaci ycons ain s.Thees ima edshockscloselyalign
wi h o -model indica o s, ein o cing he empi ical c edibili y o he indings.
The emainde o he pape is o ganised as ollows: Sec ion 2 e iews ecen s udies
ela ed o modelling COVID-speci ic de elopmen s and he empi ical li e a u e on he
pos -pandemic in la ion su ge. Sec ion3p esen s s ylised mac oeconomic ac s o
he Ge man economy since 2008. Sec ion4p esen s he model’s s uc u e. Sec ion5
de ails he model solu ion, da a, es ima ion me hodology, and discusses he pos e io
es ima es. Sec ion6examines he dynamic esponses o shocks cha ac e is ic o he
COVID-19 pe iod. Sec ion7quan i ies he main d i e s o GDP g ow h, CPI in la ion,
and wage g ow h in Ge many. Sec ion8compa es model-based esul s wi h o -model
e idence. Sec ion9conduc s a sensi i i y analysis wi hou COVID-speci ic shocks.
Sec ion10 p o ides a summa y and concludes he pape .
2 Rela ed li e a u e
The analysis ela es b oadly o wo s ands o li e a u e. The i s s and ela es o
s udies ha ha e explo ed he impac o COVID-19 on economic dynamics, using
s uc u al mac oeconomic models. Fo he US, o example, Chen e al. (2020) ex end
he New Yo k Fed DSGE model, inding he pandemic ecession p ima ily d i en
by demand shocks, while (Co ado e al. 2021) a ibu e i o a combina ion o la ge
demand and supply shocks. Fe oni e al. (2024) p opose a amewo k o es ima e
a gene al ‘Co id shock’, which loads on o model wedges o cap u e he pandemic’s
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 3 o 49 25
unique mac oeconomic dynamics, using da a om p o essional o ecas s o upda e
agen s’ belie s. In he Eu o A ea (EA), Ca dani e al. (2022a) enhance he Eu opean
Commission’s DSGE model wi h COVID-speci ic shocks and inancially-cons ained
in es o s, highligh ing he impo ance o ‘ o ced sa ings’ in explaining GDP g ow h
du ing he 2020 ecession. Ca dani e al. (2023) o e a model-based compa ison o he
pandemic’s economic impac in he US and EA. Rega ding Ge man-speci ic s udies,
Funke and Te asa (2022) examines he empo a y VAT a e cu du ing 2020q3–2020q4
in a calib a ed DSGE model o Ge many, while (Hin e lang e al. 2023) simula e he
Ge man iscal s imulus packages.
The second s and ela es o he g owing numbe o s udies wi h a ocus on he
(global) in la ion dynamics.1Fo he EA, s udies such as Ne i e al. (2023) and Pasi-
meni (2022) iden i y ising commodi y p ices as key d i e s, con ibu ing o o e hal
o he pos -COVID headline in la ion. Pasimeni (2022) also highligh s p ice p essu es
in sec o s wi h high impo con en , poin ing o in e na ional supply chain dis up ions.
Simila ly, Hansen e al. (2023) a ibu es 40% o he EA’s change in he consump ion
de la o in 2022 o impo p ices. Ca dani e al. (2023) inds demand ac o s mo e in lu-
en ial o US in la ion, while supply ac o s domina e in he EA. Howe e , Giannone
and P imice i (2024) ind unexpec edly s ong demand o ces in he Pos -co id in la-
ion, no only in he US, bu also in he EA. Blancha d and Be nanke (2023) explo e US
in la ion du ing he pandemic, iden i ying commodi y p ices, sec o al demand shi s,
and supply cons ain s as key sou ces. This app oach is applied o he EA and i s mem-
be s a es by Menz (2024) (Ge many), Pisani and Tagliab acci (2024) (I aly), Ghomi
e al. (2024) (Spain), and A ce e al. (2024) (EA), all o whom ind ha commodi y
p ice shocks and supply bo lenecks we e he p ima y in la ion d i e s.
This pape con ibu es o his discussion along se e al dimensions: (i) I de elops
and es ima es a s a e-o - he-a mul i-coun y DSGE model o he Ge man economy
(DE-REA-RoW) using da a om 1999q1 o 2023q4; (ii) i applies he me hodolog-
ical app oach o Ca dani e al. (2022a) and inco po a es he e oscedas ic domes ic
and o eign COVID-19 shocks, such as a domes ic consump ion- and in es men -
speci ic lockdown shock, a shock o labou demand (labou hoa ding) o accoun o
he wedge be ween hou s wo ked and employees (in ensi e ma gin) due o sho -
ime wo k a angemen s in Ge many, and o eign isk shocks o accoun o spillo e
e ec s; (iii) i ex ends he use o commodi ies in p oduc ion and inal consump ion
demand o accoun o ising commodi y p ices; (i ) i allows o endogenous, occa-
sionally binding cons ain s o accoun o ELB pe iods; and ( ) i p o ides o -model
e idence o he i o he model-implied es ima ed shock pa e n.
1Gi en he ocus on Ge many and he EA, I p o ide only a b ie summa y o he g owing body o s udies
on US in la ion dynamics, whe e he main d i e s du ing he 2021–2022 US in la ion su ge a e a ibu ed
o a combina ion o binding supply chain cons ain s (Comin e al. 2023;diGio anni2022; Blancha d
and Be nanke 2023), iscal s imulus (di Gio anni e al. 2023; Baye e al. 2023; Jo da and Nechio 2023),
ising commodi y p ices combined wi h expansiona y policies (Gaglia done and Ge le 2023; Reis 2022;
Blancha d and Be nanke 2023), and igh labou ma ke s (Ball e al. 2022) ha poin o a non-linea Phillips
cu e in explaining he su ge o pos -pandemic in la ion (Benigno and Egge sson 2023,2024; Ha ding
e al. 2023).
123
25 Page 4 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
3 S ylised ac s
Figu e1p esen s s ylised ac s abou selec ed mac oeconomic a iables in Ge many
du ing he Global Financial C isis (GFC) and he COVID-19 pandemic. Fi s , he
V-shaped con ac ion o economic ac i i y in 2020q2 was sha pe han he mo e
Fig. 1 S ylised ac s o he pandemic and eco e y pe iod in Ge many. No e: Real demand componen s
(in la ion a es) a e shown in pe cen age-poin de ia ions om he s eady s a e, which is calib a ed o 1.35%
(2%) pe yea , espec i ely. 1 on he y-axes co espond o 1 pp. Sou ces: Eu os a and Comex da a
123

In e na ional Economics and Economic Policy (2025) 22 :25 Page 5 o 49 25
p olonged U-shaped ecession o he GFC (Fig.1a). Unlike he 2008–2009 eces-
sion, bo h p i a e consump ion and in es men declined simul aneously du ing he
2020 pandemic. The model accoun s o hese pa e ns by inco po a ing ansi o y
consump ion- and in es men -speci ic lockdown shocks du ing 2020.
Second, despi e a signi ican decline in hou s wo ked, he numbe o employees
emained ela i ely s able du ing he onse o he pandemic (Fig.1b). The gap be ween
hou s wo ked and employmen du ing can be a ibu ed o he in oduc ion o job
e en ion schemes (sho - ime wo k), which we e designed o mi iga e employmen
losses despi e he sha p d op in GDP. The model add esses he wedge by in oducing
a labou hoa ding shock ha educes e ec i e hou s wo ked.
Thi d, Fig.1c illus a es ha CPI and GDP in la ion (le axis) ose signi ican ly
om 2021 onwa d, peaking a 8% and 6.8% in 2022q3 and 2023q2, espec i ely,
whenaccoun ing o he2%s eady s a e. Theco-mo emen be weenGDPand in la ion
du ing he 2020 lockdown, simila o he 2008–2009 ecession, indica es a s onge
ini ial demand-side d i e (posi i e co ela ion). Commodi y p ices ( igh axis) ell a
he onse o he pandemic, bu su ged in 2021–2022 due o he pandemic eco e y,
global supply chain bo lenecks, geopoli ical ensions, and, ul ima ely, Russia’s wa
agains Uk aine. By 2023, oil and ene gy p ices had d opped signi ican ly o p e-c isis
le els, con ibu ing o he decline in CPI in la ion. The model inco po a es he mos
ele an ime se ies, including commodi y p ices, GDP de la o , CPI in la ion, sec o -
speci ic goods p ices, and impo /expo p ices, o cap u e supply-side dis up ions
h ough a ious dis u bances.
4Themodel
The s uc u al se up builds upon he model used in Hohbe ge e al. (2020) and Ca dani
e al. (2022b). The economy o DE consis s o a ious sec o s including households,
i ms ha ope a e domes ically o in he impo –expo sec o , as well as a go e nmen
and a cen al bank. In con as , he egional blocks o REA and RoW ha e a simple
s uc u e. Wi hin he DE block, he e a e wo ypes o households: Rica dian and
liquidi y-cons ained (LC). The o me ha e access o inancial ma ke s, smoo h hei
consump ion, and own he i ms h ough equi y. LC households do no ha e access
o inancial ma ke s and consume all hei disposable wage and ans e income each
pe iod. Bo h household ypes supply labou o domes ic i ms a a common wage
es ablished by a labou union wi h monopoly powe .
In he DE p oduc ion sec o , i ms ope a e unde monopolis ic compe i ion and p o-
duce a a ie y o di e en ia ed in e media e goods. These in e media e goods a e hen
agg ega ed in o domes ic alue added by pe ec ly compe i i e i ms. In he subsequen
s age, o al domes ic ou pu is p oduced by pe ec ly compe i i e i ms by combining
he domes ic alue added wi h commodi ies. The RoW egion is he sole p oduce
o commodi ies, which includes bo h ene gy and non-ene gy commodi ies. In he
impo sec o (impo e aile s), pe ec ly compe i i e i ms pu chase goods om o -
eign egions and assemble hem in o a inal impo good, which is hen combined wi h
domes ic ou pu by inal good package s o c ea e inal agg ega e demand-componen
goods.
123
25 Page 6 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
The DE go e nmen pu chases inal goods and p o ides lump-sum ans e s o
households. To inance i s expendi u e, he go e nmen issues deb and imposes dis-
o iona y axes on labou , capi al, and consump ion, along wi h non-dis o iona y
lump-sum axes. Mone a y au ho i ies se sho - e m nominal in e es a es by ollow-
ing a Taylo ule, which eac s o in la ion and he ou pu gap.
Following he me hodological app oach in Ca dani e al. (2022a), he model
inco po a es he ollowing COVID-speci ic demand and supply dis u bances: (1) A
ansi o y consump ion-speci ic lockdown shock in DE and REA, ε C
, o cap u e he
lockdown-imposed d op in consump ion, (2) a ansi o y labou demand shock (labou
hoa ding), ε N
, o cap u e sho - ime wo k a angemen s, i.e. o dis inguish be ween
hou s wo ked and hou s paid, (3) a ansi o y VAT shock, ε a
, o cap u e he educ-
ion o he Ge man VAT consump ion ax du ing 2020q3–2020q4, and (4) a ansi o y
in es men -speci ic lockdown shock, ε S
, o cap u e he lockdown-imposed d op in
in es men demand. To cap u e COVID-speci ic demand con ac ion in he simpli ied
REA and RoW model blocks, he model also inco po a es addi ional o eign shocks
o he ime p e e ence ( isk shock). The ollowing desc ip ion highligh s he p ima y
aspec s o he model, wi h u he de ails a ailable in Appendix 1.
4.1 Households
The e is a con inuum o households, indexed by j∈[0,1], whe eas a sha e o house-
holds (Rica dians ωs) owns i ms and ades asse s. The emaining sha e (1-ωs)is
liquidi y-cons ained (c) and consumes i s en i e disposable income in each pe iod
(‘hand- o-mou h’). Household p e e ences a e de ined o e consump ion and leisu e.
Addi ionally, Rica dian u ili y is de e mined by he holdings o inancial asse s.
4.1.1 Rica dian households
Rica dian p e e ences a e gi en by he in ini e ho izon expec ed li e- ime u ili y:
Us
j=E0
∞

=0
(˜
β ) us
j, (.), (1)
whe e ˜
β is he s ochas ic discoun ac o .2Rica dian households ha e ull access o
inancial ma ke s, which allows hem o accumula e weal h, Aj, , consis ing o domes-
ic p i a e isk- ee bonds, B
j, , domes ic go e nmen bonds, BG
j, , one in e na ionally
aded bond, BW
j, , and in e na ionally aded sha es, PS
Sj, :
Aj, =B
j, +BG
j, +eRoW, BW
j, +PS
Sj, (2)
2˜
β =βexp(εc
−1) ea u es a shock o he subjec i e a e o ime p e e ence (sa ing shock) εc
.
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 7 o 49 25
whe e PS
is he nominal p ice o sha es. The in e na ional bond is issued and denomi-
na ed in o eign cu ency, he e o e, he inancial weal h in e ms o domes ic cu ency
is also in luenced by he nominal exchange a e, eRoW, .
Rica dian households gain u ili y om consump ion, Cs
j, , and expe ience disu-
ili y om labou , Ns
j, , as well as om holding isky inancial asse s, UA
j, −1.The
ins an aneous u ili y unc ion o sa e s, us(.), is de ined as:
us
j, (Cs
j, ,Ns
j, ,
UA
j, −1
PC, a
)=(Cs
j, −ε C
−h(Cs
−1−ε C
−1))1−θ
1−θ
−ωNεU
(C )1−θ(Ns
j, +ε N
)1+θN
1+θN
−(Cs
j, −ε C
−h(Cs
−1−ε C
−1))−θUA
j, −1
PC, a
,(3)
whe e Cs
=1
0Cs
j, dj,hmeasu es he s eng h o ex e nal habi s in consump ion,
and ωNis he s ochas ic weigh o he disu ili y o labou . εU
cap u es a labou supply
shock. ε C
cap u es he non-pe sis en lockdown shock ( o ced sa ing) ha cons ains
consump ion ou side o habi pe sis ence, ε N
cap u es a labou hoa ding shock.3The
disu ili y o holding isky inancial asse s, UA
j, −1, akes he ollowing o m:
UA
j, −1=αb0+εB
−1BG
j, −1+αbw0+εbw
−1eRoW, BW
j, −1
+αbw1
2
(eRoW, −1NFA
−1)2
PY
−1Y −1
+αS0+εS
−1PS
−1Sj, −1.(4)
In e na ionally aded bonds a e subjec o ansac ion cos s which a e a unc ion o
he a e age NFA posi ion ela i e o GDP. The asse -speci ic isk p emium depends on
an asse -speci ic exogenous shock εx,x∈{B,S,bw}, and an asse -speci ic in e cep
αx,x∈{b0,S0,bw0}. By inco po a ing a disu ili y o holding isky asse s, he model
e lec s households’ p e e ence o sa e asse s, such as isk- ee sho - e m bonds. This
p e e ence c ea es an endogenous gap be ween he e u ns on isky asse s and hose
on sa e bonds (Albonico e al. 2019).
The j h Rica dian household aces he ollowing budge cons ain :
PC, a
Cs
j, +Aj, =(1−τN)W (Ns
j, +ε N
)+(1+i
−1)B
j, −1+(1+iG
−1)BG
j, −1
+(PS
+PY
D )Sj, −1+(1+iW
−1)eRoW, BW
j, −1
+Ts
j, − axs
j, ,(5)
3Agg ega e consump ion, C , in he second e m o he igh -hand side is in oduced as no malisa ion o
ensu e a balanced s eady-s a e g ow h pa h.
123
25 Page 8 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
whe e PC, a
is he p i a e consump ion de la o ,4W deno es he nominal wage
a e, Ns
j, is he employmen in hou s, Ts
j, a e go e nmen ans e s and axs
j, lump-
sum axes paid by sa e s. i
,iG
, and iW
a e e u ns on domes ic p i a e isk- ee
bonds, domes ic go e nmen bonds, and in e na ionally aded bonds, espec i ely.
T ans e s include unemploymen bene i s, BENs
j, , de ined as he gap be ween ac ual
and po en ial hou s mul iplied wi h bene i eplacemen a e, τu:
Ts
j, =BENs
j, +ωsP T ,(6)
BENs
j, =τuW Npo
−(Ns
j, +ε N
).(7)
Rica dian households ecei e nominal p o i s in he o m o di idends, D . G oss
nominal e u n on sha es S is de ined as:
1+iS
=PS
+PY
D
PS
−1
.(8)
Rica dian households maximise he p esen alue o he expec ed s eam o u u e
u ili y by choosing he amoun o consump ion, Cs
j, , and nex pe iod asse holdings,
B
j, ,BG
j, ,Sj, ,BW
j, , subjec o hei budge cons ain (Eq.5), The op imali y condi-
ions can be ound in Appendix A.1.
4.1.2 Liquidi y-cons ained households
Liquidi y-cons ained (LC) households do no ha e access o inancial ma ke s. Thei
ins an aneous u ili y unc ion, uc(.),is:
uc
j, (Cc
j, ,Nc
j, )=(Cc
j, −ε C
−h(Cc
−1−ε C
−1))1−θ
1−θ
−ωNεU
(C )1−θ
1+θN(Nc
j, +ε N
)1+θN.(9)
Ineach imepe iod, heyconsume hei en i e ne disposableincome,whichconsis s
o a e - ax (paid) labou income and lump-sum ans e s om he go e nmen :
PC, a
Cc
j, =(1−τN)W (Nc
j, +ε N
)+Tc
j, − axc
j, +PC, a ε C
−1
6
13

i=8
ε C
−i.
(10)
Du ing he COVID-19 pandemic, his cons ain is eased such ha e en LC house-
holds can sa e ( o ced sa ings), ε C
, which will be g adually spen pos -pandemic.
4PC, a
is he VAT adjus ed p i a e consump ion de la o , PC, a
=(1+τC+ε VAT
)PC
,whe e
τCis he ax a e on consump ion (VAT) and ε V AT
cap u es he VAT- ax cu du ing 2020q3–2020q4
implemen ed by he Ge man go e nmen .
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 15 o 49 25
ITR ep esen s in e na ional ans e s ha allow o calib a e a non-ze o s eady s a e
o he ade balance. The sum o all coun ies’ ne o eign asse s a e ze o:

l
NFA
l, sizel=0.(41)
4.8 The REA and RoW blocks
The REA and RoW (subsc ip k=REA,RoW) model blocks include a budge
cons ain o he ep esen a i e household, demand unc ions o bo h domes ic and
impo ed goods, a linea p oduc ion echnology, a New Keynesian Phillips cu e,
and a Taylo ule. Bo h egions do no ake capi al accumula ion in o accoun . The
simpli ied model blocks a e subjec o a ious shocks, including hose a ec ing labou
p oduc i i y, p ice ma kups on he inal ou pu , he subjec i e discoun a e, he ela i e
p e e ence o domes ic e sus impo ed goods, and mone a y policy su p ises.
The household budge cons ain in he REA, as a commodi y impo e , is de ined
as:
YREA, PY
REA, +τCOCOREA, PY0=PC
REA, CREA, +TB
REA, ,(42)
whe e τCOCOREA, PY0 ep esen s he excise du y.
Final agg ega e demand, Ck, , is a combina ion o domes ic ou pu , YC
k, , and
impo ed goods, MC
k, , using he ollowing CES unc ion:
Ck, =Ap
k, (1−εM
k, sM
k)
1
σc
k(YC
k, )
σc
k−1
σc
k+(εM
k, sM
k)
1
σc
k(MC
k, )
σc
k−1
σc
k
σc
k
σc
k−1.(43)
σc
k ep esen s he impo elas ici y o subs i u ion, ApC
is a shock o p oduc i i y in
he sec o p oducing goods, C, and sM
is he impo sha e. The demand o domes ic
and impo ed goods is ob ained om p o i maximisa ion:
YC
k, =(ApC
k, )σc
k−11−εM
k, sM
kPY
k,
PC
k, −σc
kCk, ,(44)
MC
k, =(ApC
k, )σc−1εM
k, sM
kPM
k,
PC
k, −σc
kCk, ,(45)
whe e he consume p ice de la o , PC
k, ,is:
PC
k, =(ApC
k, )−1(1−εM
k, sM
k)(PY
k, )1−σc
k+εM
k, sM
k(PM
k, )1−σc
k1
1−σc
k.(46)
The good p oduce s use labou as inpu ac o , Yk, =AY
k, Nk, , whe e AY
k, ep e-
sen s end p oduc i i y. The p ice-se ing equa ion ollows a New Keynesian Phillips
123

25 Page 16 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
cu e:
πY
k, −¯πY
k=βλk, +1
λk,
(πY
k, +1−¯πY
k)+φY
klog(Yk,
¯
Yk
)+εY
k, ,(47)
whe e λk, =(Ck, −hkCk, −1)−θkis he ma ginal u ili y o consump ion, and εY
k, is
a cos -push shock.
REA and RoW o al nominal expo s a e de ined as: PX
k, Xk, =lPX
l,k, Ml,k, ,
wi h he bila e al expo p ice being de ined as he domes ic p ice subjec o a bila e al
p ice shock, PX
l,k, =exp(εX
l,k, )PY
k, .
Combining he wo egions’ FOCs wi h espec o in e na ional bonds de i es he
unco e ed in e es pa i y (UIP) condi ion:
E eRoW,EA, +1
eRoW,EA, (1+iRoW, )=(1+iEA, )+εbw
EA, +αbw0
EA +αbw1
EA
eRoW,EA, Bw
EA,
PY
EA, YEA,
,
(48)
whe e εbw
EA, cap u es a eu o exchange a e shock (shock o he bond p emium be ween
EA and RoW), and αbw1
EA is a deb -dependen coun y isk p emium on NFA holdings
o ensu e long- un s abili y o he model (Schmi -G ohe and U ibe 2003).
4.9 RoW commodi y supply
The RoW exclusi ely supplies wo dis inc commodi ies, namely oil, COOil and
non-oil commodi ies, COIS, such as na u al gas and ma e ials, o domes ic and o -
eign i ms. εCO
cap u es exogenous commodi y supply shocks. The RoW p oduce
combines oil (Oil) and non-oil (IS) commodi ies in o bundles, CO, ha a e ei he
expo ed o DE and REA o used domes ically. The p ice o he commodi y bundle is
speci ic o i s des ina ion and includes a shock e m, εP,CO
l, , whe e l=(DE,REA),
aiming o e lec p ice a ia ions due o di e ing commodi y baske s. The e o e:
PCO
l, =εPCO
l, sOil
lPOil
1−σCO
+(1−sOil
l)PIS
1−σCO1
1−σCO ,(49)
PCO
=sOilPOil
1−σCO
+(1−sOil)PIS
1−σCO1
1−σCO .(50)
Commodi y p ices a e exogenous and ollow:
PCO
=P
ACO
,whe e CO=(Oil, IS) (51)
whe e ACO
is he exogenous commodi y-speci ic p oduc i i y echnology.
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 17 o 49 25
5 Model solu ion and econome ic app oach
5.1 Model solu ion
The ollowing non-linea sys em summa ises he obse a ion and s a e equa ions o
he model:
yobs
=1()S ,(52)
S =1()S −1+ε(θ)ε ,ε
∼N(0,Q I)(53)
In obse a ion Eq.52,yobs
deno es he ec o o obse ables a ime , and 1()
links he model a iables o he da a. The s a e Eq.53 desc ibes he ansi ion o he sys-
em’s s a e a iables, S , whe e 1() and εa e he coe icien ma ices. Following
(Ca dani e al. 2022a), he model shocks, ε , ollow a no mal dis ibu ion wi h ime-
a ying co a iance ma ix Q I, such ha he s a e Eq.53 inco po a es de e minis ic
he e oscedas ici y:
Q =QCOVID o ∈{2020q1:2021q4},
Qo he wise.(54)
Fo he pandemic pe iod 2020q1–2021q4, Q =QCOVID inco po a es empo a y
COVID-speci ic shocks, whe eas p io o COVID-19, Q =Q, implies ze o s anda d
de ia ions (and ze o expec a ions) o hese shocks.
5.2 Da a
The model is es ima ed qua e ly, using da a o Ge many and he Eu o A ea (EA19)
om Eu os a . Bila e al ade lows a e based on GTAP ade ma ices, co e ing goods
and se ices. Annual da a o he es o he wo ld (RoW) a e sou ced om he
IMF’s In e na ional Financial S a is ics (IFS) and Wo ld Economic Ou look (WEO)
da abases. The model includes 41 obse ed se ies and 41 exogenous shocks. De ails
on he ime se ies a e p o ided in Appendix 4.
5.3 Es ima ion p ocedu e and il e ing
The es ima ion p oceeds in h ee s eps:
1. A subse o pa ame e s is calib a ed o align wi h his o ical long- un p ope ies,
such as s eady-s a e a ios. The he e oscedas ic il e enables he ex-an e speci ica ion
o shock s anda d e o s o each pe iod be ween 2020q1 and 2021q4. The iming o
he COVID- ela ed shocks is calib a ed o e lec he imposed lockdown pe iods and
policy-induced VAT educ ions, as de ailed in Table 2. Sec ion9includes a sensi i i y
analysis examining he model’s i and economic na a i e in he absence o COVID-
speci ic shocks.
123
25 Page 18 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
2. The emaining pa ame e s and shocks a e es ima ed using da a o e he sample
pe iod1999q1–2023q4. The ull-sample es ima ionp ocedu e inco po a es he es ima-
ion o he e oscedas ic COVID-speci ic a iances du ing he pe iod 2020q1–2021q4,
he eby allowing o ime- a ying shock dis u bances Q .7The likelihood unc ion
(e alua ed by implemen ing he Kalman il e ) and he p io dis ibu ion o he pa am-
e e s a e combined o calcula e he pos e io dis ibu ion. The pos e io Ke nel is hen
simula ed nume ically using he slice sample algo i hm as p oposed by Planas e al.
(2015).8We use he Dyna e so wa e o sol e he linea ised model and o pe o m he
es ima ion Adjemian e al. 2024.
3. The model accoun s o endogenous e ec i e lowe bound (ELB) pe iods using
he OccBin app oach by Gue ie i and Iaco iello (2015). Mo e p ecisely, he pape
employs a piecewise linea Kalman il e , as in Gio annini e al. (2021), o iden i y
he s uc u al shocks un il 2023q4 gi en he pa ame e es ima es, accoun ing o ELB
pe iods.
5.4 Calib a ed pa ame e s and pos e io es ima es
S eady-s a e a ios in he model a e calib a ed o ma ch he a e age his o ical da a o
DE, REA, and RoW. The s eady-s a e sha es o DE, REA, and RoW in wo ld GDP
a e 5.4%, 14.5%, and 80.1%, espec i ely. The ade- ela ed pa ame e s, speci ically
he deg ee o openness and impo p e e ences, e lec he a e age impo con en o
demand componen s as compu ed by Bussiè e 2013. Fo Ge many, he s eady-s a e
a ios o p i a e consump ion, in es men , and go e nmen expendi u e o GDP a e
55%,19%, and21%, espec i ely.Theglobal end GDPg ow h a eand end in la ion
a e a e 1.25% and 2% pe yea , espec i ely. The s eady-s a e sha e o Rica dian
households is calib a ed a 61%, based on Dolls e al. (2012). Table 3in Appendix 2
p o ides an o e iew o calib a ed pa ame e s.
Table 1 epo s p io and pos e io es ima es o selec ed model pa ame e s. The
es ima ed EA mone a y policy pa ame e s sugges a s ong esponse o EA in la ion
(1.78) compa ed o he EA ou pu gap (0.05), oge he wi h ela i ely high in e es
a e ine ia (0.91). Es ima ed habi pe sis ence is 0.90, implying a slow adjus men
o consump ion o changes in income. Risk a e sion and he in e se labou supply
elas ici y a e 1.33 and 3.72, espec i ely, and simila o hose in he li e a u e (e.g.,
Hohbe ge e al. 2020; Ca dani e al. 2022b). Conce ning in e na ional ade es ima es,
he p ice elas ici y o impo demand is 1.93, and he p ice elas ici y o commodi y
demand is 0.40. The pos e io es ima es also sugges s icky p ices (40.8), wages (17.3),
and in es men s (38.2). The es ima ed pa ame e s o REA and RoW can be ound in
7Ca dani e al. (2022a,2023) employ a wo-s ep app oach, whe e he pa ame e s a e es ima ed using da a
only un il 2019q4 in a i s s ep. In he second s ep, hey es ima e he a iances o he e oscedas ic COVID-
speci ic shocks using da a o he pandemic pe iod (2020q1–2021q4), while keeping all o he pa ame e s
unchanged by ini ialising he sys em’s s a e and co a iance ma ix a hei es ima es om he i s s ep.
8The slice sample algo i hm was in oduced by Neal (2003). Planas e al. (2015) econside he slices
along he majo axis o he ellipse o be e i he dis ibu ion han any Euclidean slices. The slice sample
has been shown o be mo e e icien and o o e be e -mixing p ope ies han he Me opolis-Has ings
sample Calés e al. 2017. The slice sample has been used, e.g., by Gio annini e al. (2019) and Hohbe ge
e al. (2019,2023).
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 19 o 49 25
Table 1 P io and pos e io dis ibu ion o key es ima ed DE model pa ame e s
P io dis ibu ion Pos e io dis ibu ion
Mean
Dis S .De DE
EA mone a y policy
In e es a e pe sis ence ρiG 0.85 0.91
0.05 (0.88, 0.93)
Response o in la ion ηi,φ G 2.00 1.78
0.20 (1.56, 2.19)
Response o GDP ηi,yG 0.10 0.05
0.04 (0.03, 0.11)
P e e ences
Consump ion habi pe sis ence hB 0.50 0.90
0.20 (0.83, 0.92)
Risk a e sion θG 1.50 1.33
0.20 (1.16, 1.70)
In e se F isch elas ici y o labou supply θNG 2.50 3.72
0.50 (2.21, 4.86)
Impo p ice elas ici y σzG 2.00 1.93
0.40 (1.64, 2.19)
Oil p ice elas ici y σoG 0.5 0.40
0.1 (0.32, 0.48)
Nominal and eal ic ions
P ice adjus men cos γPG 20 40.8
12 (33.7, 49.9)
Nominal wage adjus men cos γwG 20 17.3
12 (9.2, 19.4)
Real wage igidi y γw B 0.47 0.85
0.20 (0.54, 0.89)
Employmen adjus men cos γNG20 1.8
12 (1.5, 2.3)
Capaci y u ilisa ion quad a ic adj cos γCU,2G 0.003 0.003
0.0012 (0.002, 0.005)
In es men adjus men cos γI,2G 40 38.2
25 (19.1, 67.5)
Fiscal policy
Lump-sum ax pe sis ence ρ ax B 0.85 0.82
0.06 (0.75, 0.89)
Tax esponse o de ici ηde B 0.03 0.03
0.008 (0.02, 0.04)
Cols. (1)–(2) lis model pa ame e s. Cols. (3)–(4) indica e he p io dis ibu ion unc ion (B: Be a dis i-
bu ion; G: Gamma dis ibu ion). Col. (5) shows he mode and he 90% HPD in e als o he pos e io
dis ibu ions o model pa ame e s
123
25 Page 20 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
Table 2 P io and pos e io dis ibu ion o es ima ed COVID-speci ic inno a ions
P io dis ibu ion Pos e io
dis ibu ion
Mean
Dis S .De Time
DE COVID-speci ic shocks (s anda d de ia ions in %)
Consump ion-speci ic lockdown shock ε C G 5 [20q1 - 21q3] 4.75
2 (4.03, 7.36)
In es men -speci ic lockdown shock ε S G 5 [20q1 - 20q2] 2.27
2 (1.10, 5.80)
labou hoa ding shock ε N G 5 [20q2 - 21q1] 2.57
2 (1.85, 4.77)
VAT- ax shock ε VAT G 2 [20q3 - 20q4] 1.70
0.8 (0.91, 3.03)
REA COVID-speci ic shocks (s anda d de ia ions in %)
Consump ion-speci ic lockdown shock ε C G 5 [20q1 - 20q2] 6.97
2 (4.99, 9.78)
Risk shock ε βG 5 [20q1 - 21q4] 8.30
2 (3.91, 10.13)
RoW COVID-speci ic shocks (s anda d de ia ions in %)
Risk shock ε βG5 [20q1 - 21q4] 13.76
2 (12.63, 17.44)
No e: The able epo s he mode and he s anda d de ia ion (in %) o he pos e io dis ibu ions o DE,
REA, and RoW COVID-speci ic shock inno a ions. Time e e s o he ex-an e assumed pe iods o he
he e oscedas ic shock
Table 4in Appendix 2. Tables 5and 6in Appendix 2 epo he main es ima ed shock
p ocesses o DE, and REA and RoW, espec i ely.
Table 2p o ides he pos e io es ima es o pandemic-speci ic shocks, e ealing a
mix o demand-side (lockdown) and supply-side shocks (labou ma ke ).9Speci ically,
i shows a signi ican incidence o consump ion-speci ic lockdown shocks (4.75%)
and subs an ial labou hoa ding shocks (2.57%), e lec ing Ge many’s adop ed labou
ma ke policies. The es ima ed VAT cu in 2020q3–2020q4 is 1.7%. The simpli ied
REA and RoW s uc u e sugges s pe sis en sa ing shocks ( isk shocks) o cap u e
he COVID-19 pa e n du ing 2020 and he eco e y om 2021 o 2022. Figu e12 in
9Fo obus ness, I inco po a ed addi ional domes ic and o eign he e oscedas ic p oduc i i y shocks o
he pandemic pe iod (2020q1–2021q4) and he in la iona y pe iod (2022q1–2023q4) o assess whe he
he model migh be missing key supply-side d i e s no cap u ed by he s anda d shocks. The analysis
indica es ha hese addi ional shocks a e weakly iden i ied and ha e only a ma ginal impac on GDP and
in la ion compa ed o he s anda d inco po a ed and es ima ed supply shocks. This esul sugges s ha he
model e ec i ely cap u es he dynamics o bo h he pandemic and he in la iona y su ge using he obse ed
supply-side se ies and shocks.
123

In e na ional Economics and Economic Policy (2025) 22 :25 Page 21 o 49 25
Appendix 2p o ides he p io and pos e io dis ibu ions o he es ima ed COVID-
speci ic shocks.
5.5 ELB en i onmen —non-linea smoo hing
The model accoun s o binding ELB pe iods using he piecewise linea Kalman il e
algo i hm om Gio annini e al. (2021). Based on he model’s pa ame e es ima es, i
iden i ies s uc u al shocks ha accoun o endogenous ELB pe iods using he OccBin
app oach o Gue ie i and Iaco iello (2015), gene a ing a sequence o smoo hed a i-
ables and shocks consis en wi h he occasionally binding cons ain .10 The sequence
o egimes o Ge many, indica ing whe he he ELB is binding o no , is shown in
Table 7in Appendix 2.
6 Dynamic ansmission o shocks
This sec ion examines he es ima ed dynamic e ec s o shocks cha ac e is ic o he
COVID-19 pandemic and he subsequen in la ion su ge. Fo he pandemic pe iod, i
compa es he COVID-speci ic shocks wi h hei s anda d coun e pa s in a scena io
whe e he ELB on he sho - e m nominal in e es a e is binding.11 Speci ically, i
p esen s gene alised impulse esponse unc ions (GIRFs), which a e simula ed as
ollows: The s a ing poin o he simula ions is se o 2020q2. Based on he egime
sequenceinTable7,a pe iod whe e he ELBisbinding o 5 mo e qua e s. Remo e he
speci icshock(e.g., he consump ion-speci iclockdown shock) andsimula e he model
wi h all emaining shocks. Then, ein oduce his shock and e un he simula ion. The
di e ence be ween he wo scena ios yields he GIRFs unde he ELB (shown as
dashed lines in he Figu es).
All shocks a e simula ed using one es ima ed s anda d de ia ion. Each panel illus-
a es he dynamic esponses o eal GDP, he policy a e, CPI in la ion, p i a e
consump ion, p i a e in es men , o al hou s wo ked, he eal in e es a e, he eal
e ec i e exchange a e (REER), and he ade balance- o-GDP a io. Real a iables
a e shown as pe cen de ia ions om hei s eady s a es, while he policy a e (annu-
alised), CPI in la ion (annualised), and he ade balance- o-GDP a io a e exp essed
as de ia ions in basis poin s and pe cen age poin s, espec i ely.
6.1 Pandemic- ela ed esponses
This subsec ion p esen s he dynamic esponses o he es ima ed COVID-speci ic
dis u bances, namely (i) he ansi o y consump ion-speci ic lockdown shock ( o ced
10 Simila ELB implemen a ions a e ound in Hohbe ge e al. (2019) and C oi o o e al. (2020).
11 When he ELB is binding, he economic con ac ion du ing he COVID-19 pe iod, ma ked by declining
ou pu and in la ion, is no mi iga ed by expansiona y mone a y policy. In con as , du ing 2022–2023,
nega i esupply-side shocksd i ingupin la ionandslowingeconomicac i i ya ecompoundedby mone a y
igh ening aimed a educing in la ion.
123
25 Page 22 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
sa ing, (ii) he shock o labou hoa ding, (iii) he in es men -speci ic lockdown shock,
and (i ) o eign isk shocks in REA and RoW.
T ansi o y o ced sa ing shock (consump ion-speci ic lockdown)
Figu e2compa es he es ima ed dynamic esponses o he ansi o y consump ion-
speci ic lockdown shock ( o ced sa ing) and he s anda d pe sis en sa ings shock.
The ansi o y lockdown shock (dashed), combined wi h a binding ELB on in e es
a es, leads o an 8.5% d op in p i a e consump ion and a 3.6% d op in eal GDP,
bo h las ing o one qua e (2020q2). The all in GDP causes a empo a y dip in
employmen (hou s wo ked), al hough he decline is mi iga ed by labou adjus men
cos s. In he sho e m, he ade balance imp o es due o lowe domes ic demand and
educed impo s. I is impo an o no e ha his ansi o y lockdown shock cap u es
bo h demand-side e ec s, such as p ecau iona y household beha iou , and supply-
side e ec s, such as o ced business closu es. The ela i ely modes impac on CPI
in la ion e lec s he shock’s empo a y na u e and he p esence o s icky p ices. Unlike
pe sis en sa ings shocks, ansi o y shocks do no in luence medium- e m in la ion
expec a ions, which play a c ucial ole in de e mining ac ual in la ion.
Fig. 2 Dynamic esponses o sa ing shocks. No e: The ade balance (no malised by GDP), in la ion (p.a.),
and eal in e es a e (p.a.) esponses a e exp essed as pe cen age poin , he policy a e (p.a.) as basis poin ,
de ia ions om s eady s a e. All o he esponses a e pe cen de ia ions om s eady s a e. The size o he
shock co esponds o one es ima ed s anda d de ia ion. Pe iods co espond o qua e s
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 23 o 49 25
Fig. 3 Dynamic esponses o labou shocks. No e: The ade balance (no malised by GDP), in la ion (p.a.),
and eal in e es a e (p.a.) esponses a e exp essed as pe cen age poin , he policy a e (p.a.) as basis poin ,
de ia ions om s eady s a e. All o he esponses a e pe cen de ia ions om s eady s a e. The size o he
shock co esponds o one es ima ed s anda d de ia ion. Pe iods co espond o qua e s
The economy’s esponse o he s anda d sa ings shock (solid line) is quali a i ely
simila , cha ac e ised by a hump-shaped pa e n in domes ic demand d i en by habi
pe sis ence. Mo eo e , he pe sis en sa ings shock emains de la iona y when he
economy exi s he ELB en i onmen a e se en qua e s, p omp ing he cen al bank
o lowe in e es a es in he medium e m ela i e o he no-shock baseline.12 This
policy esponse boos s in es men , s abilises p i a e demand and ou pu , and leads o
domes ic cu ency dep ecia ion, which in u n imp o es he ade balance.
Labou hoa ding shock
Figu e3compa es he es ima ed esponses o he s anda d labou demand shock
(solid line) and he COVID-speci ic labou hoa ding shock (dashed line). Labou
hoa ding ep esen s a shock o labou demand ha accoun s o he wedge be ween
hou s wo ked and employmen . This ansi o y shock educes e ec i e hou s wo ked
by 1.5% on impac . As he capi al-labou a io inc eases, he ma ginal e u n o capi al
12 No e ha he s a ing poin o he simula ions is 2020q2, a pe iod du ing which he ELB is ini ially
expec ed o bind o se en mo e qua e s (see Table 7). A e wa d, he policy a e ansi ions o he (uncon-
s ained) Taylo ule, esponding o he nega i e shocks by dec easing he a e.
123
25 Page 24 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
declines, leading o a all in in es men . Howe e , households main ain eal con-
sump ion le els, keeping o e all income (GDP) and in la ion ela i ely s able. The
economy’s es ima ed esponse o he s anda d labou demand shock (solid line) di -
e s no ably, as he pe sis en decline in employmen educes eal wages and weakens
domes ic demand componen s. The accompanying eal exchange a e app ecia ion
wo sens he ade balance, esul ing in a much sha pe and mo e p olonged con ac-
ion in ou pu . In la ion ises due o highe impo p ices, p omp ing an inc ease in
in e es a es once he economy exi s he ELB en i onmen .
T ansi o y in es men shock (in es men -speci ic lockdown)
Figu e13 in Appendix 2compa es he es ima eddynamic esponses o he ansi o y
in es men -speci ic lockdown shock (dashed line) and he s anda d pe sis en shock o
he in es men isk p emium. The economy’s eac ion o he lockdown shock closely
esembles ha o he consump ion-speci ic lockdown shock, e lec ing i s one-o
na u e. P i a e in es men d ops by 11%, and eal GDP alls by 1.4% in 2020q2, wi h
only a ma ginal e ec on CPI in la ion. In con as , he esponse o he in es men
isk shock (solid line) is cha ac e ised by a pe sis en decline in domes ic demand
componen s, exe ing downwa d p essu e on CPI in la ion. This leads o lowe in e es
a es in he medium e m (a e exi ing he ELB), which in u n boos s consump ion
by educing sa ings, s abilises p i a e demand and ou pu , and imp o es he ade
balance.
Fo eign demand shocks
Figu e4compa es he dynamic e ec s o a nega i e o eign demand shock in REA
(solid line) and RoW (dashed line) on he Ge man economy, modelled as a empo a y
inc ease in o eign household sa ings du ing he COVID-19 pandemic. This shock
educes o eign consump ion, ou pu , and p ices. Fo Ge many, he REA shock gene -
a es signi ican ly la ge spillo e s, causing a 0.4% d op in eal GDP wi hou mone a y
suppo . This is p ima ily due o an app ecia ion o he eal e ec i e exchange a e
(REER), which nega i ely impac s he ade balance by educing o eign demand. The
esul ing decline in economic ac i i y lowe s employmen , eal wages, and domes ic
consump ion. Wi h he ELB cons ain in place in 2020, hese spillo e s esemble he
e ec s o an addi ional isk shock, cha ac e ised by he co-mo emen o consump ion
and in es men , o Ge many.
In summa y, he dynamic esponses o he COVID-speci ic shocks cap u e qual-
i a i e pa e ns ha help explain key ea u es o he pandemic pe iod (see Fig.1).
Consump ion- and in es men -speci ic lockdown shocks lead o sha p declines in
consump ion, in es men , and ou pu , ollowed by a swi eco e y. Labou hoa d-
ing accoun s o he disc epancy be ween educed hou s wo ked and ela i ely s able
employmen du ing he pandemic. Nei he ansi o y sa ings and in es men shocks
no labou hoa ding esul in a signi ican change in in la ion. Spillo e s om REA and
RoWp o ideinsigh sin o he global impac o he pandemic and heassocia eddecline
in Ge many’s ade balance. Consequen ly, inco po a ing addi ional pandemic- ela ed
shocks is necessa y o ully cap u e he in o ma ion om ou comp ehensi e da a se .
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 31 o 49 25
gency indica o a e he i s lockdown (2020q2) indica es ha p i a e consump ion
ebounded as e han he easing o es ic ions, likely due o he inc eased adop ion
o online e ail. Bo h he al e na i e indica o s and he es ima ed lockdown shock also
co espond du ing he subsequen imp o emen in he epidemiological si ua ion in
2021.
Figu e9b compa es he es ima ed e ail impo p ice ma kup shock wi h he Global
Supply Chain P essu e Index (GSCPI) by Benigno e al. (2022), which measu es p es-
su es wi hin he global supply chain and indica es po en ial dis up ions. The es ima ed
p ice ma kup closely ollows he GSCPI pa e n. No ably, du ing he pandemic om
2020 o 2022, he es ima ed p ice ma kup ose sha ply alongside inc easing global
supply cons ain s, be o e bo h showed educed p essu es on he supply chain owa d
he end o 2022 and he beginning o 2023.
9 Sensi i i y analysis
This sec ion explo es he sensi i i y o he model’s esul s h ough wo coun e ac-
ual analyses: (i) he absence o he e oscedas ic COVID-speci ic shocks, and (ii) he
obus ness o obse ing shadow a es ins ead o he sho - e m nominal in e es a e
o p oxy o he e ec o uncon en ional mone a y policy (UMP).
9.1 Coun e ac ual wi hou COVID-speci ic shocks
Figu e10 p esen s he shock decomposi ion o eal GDP g ow h, CPI in la ion, and
wage g ow h o wo model a ian s: (i) one including COVID-speci ic shocks and (ii)
one excluding hese shocks. The la e a ian is gene a ed by unning a smoo he wi h
iden ical es ima ed pa ame e s, bu wi h all COVID-speci ic shocks deac i a ed. The
exogenous shock g oups a e simila , excep he o me a ian sepa a ely isualises
all COVID- ela ed shocks (ligh blue).
The coun e ac ual model wi hou COVID-speci ic shocks a ibu es he 2020 GDP
d op o pe sis en sa ings shocks (10b). This model’s slowe consump ion esponse
a ec s u u e expec a ions, leading o (i) a s onge nega i e demand impac on CPI
in la ion in 2020 and (ii) mo e p onounced o se ing supply-side ac o s, like p ice
and wage ma kup shocks, o ma ch obse ed da a. Fo nominal wage g ow h, posi i e
wage ma kup shocks (nega i e supply shocks) a e needed in 2020 o econcile he
decline in hou s wo ked wi hou COVID- ela ed labou hoa ding shocks (10 ).19 In
he absence o COVID-speci ic shocks, he model equi es highe shock a iances o
ma ch he obse ed da a pa e ns, pa icula ly du ing 2020. The implied adjus men
dynamics wi h COVID-speci ic shocks a e mo e closely aligned wi h he obse ed
da a du ing he pandemic pe iod, indica ing a be e model i .
F om an empi ical s andpoin , da a densi y se es as a aluable global c i e ion
o model e alua ion in he Bayesian con ex . I assesses he model i , a ou ing
19 In an ea ly ex-an e assessmen o he COVID-19 pandemic, Mckibbin and Fe nando (2020)used
p e e ence and isk shocks o p edic he ini ial phase o he pandemic wi hou explici ly inco po a ing
lockdown- ela ed shocks. This app oach is compa able o Fig.10b, which p o ides a easonable economic
in e p e a ion. Howe e , he added alue o ansi o y lockdown shocks lies in hei ma ginal impac on
u u e expec a ions and, consequen ly, he imp o ed i o nominal a iables.
123

25 Page 32 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
2018 2019 2020 2021 2022 2023 2024
-0.1
-0.05
0
0.05
0.1
0.15
Ini ial Values
COVID-19
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
2018 2019 2020 2021 2022 2023 2024
-0.1
-0.05
0
0.05
0.1
0.15
Ini ial Values
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
2018 2019 2020 2021 2022 2023 2024
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
Ini ial Values
COVID-19
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
2018 2019 2020 2021 2022 2023 2024
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
Ini ial Values
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
2018 2019 2020 2021 2022 2023 2024
-0.1
-0.05
0
0.05
0.1
0.15
Ini ial Values
COVID-19
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
2018 2019 2020 2021 2022 2023 2024
-0.1
-0.05
0
0.05
0.1
0.15
Ini ial Values
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
Fig. 10 Coun e ac ualwi hou COVID-speci icshocks.No e: Real GDP g ow h,CPI in la ion, and nominal
wage g ow h a e shown as pe cen age-poin de ia ions om hei s eady s a es, calib a ed o 1.25%, 2%,
and 2.9% pe yea , espec i ely. 0.01 on he y-axis co esponds o 1 pp. Figu es10a, c, and e p esen iden ical
his o ical decomposi ions as Figs.6,7,and8, espec i ely
simplici y by penalising models wi h mo e pa ame e s, assuming an equal i . In he
baseline model, he da a densi y (12.225) is signi ican ly highe han ha o he model
excluding COVID-speci ic shocks (11.407), indica ing ha he es ima ion p ocess
suppo s he inclusion o he e oscedas ic dis u bances.20
9.2 Coun e ac ual wi h shadow a es
Du ing he obse ed pe iod, he Eu opean Cen al Bank (ECB) ex ensi ely employed
uncon en ional mone a y policy (UMP) measu es. As he model uses a i s -o de
app oxima ion, i does no accoun o occasionally binding cons ain s du ing es i-
ma ion bu applies an ex-pos e alua ion o he ELB ia he Occbin smoo he . Gi en
he ich se o obse ed ime se ies and es ima ed shocks, UMP e ec s a e, hence,
implici ly cap u ed h ough domes ic demand shocks and exchange a e dep ecia ion.
20 The da a densi y is epo ed in log poin s using a Laplace app oxima ion.
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 33 o 49 25
2018 2019 2020 2021 2022 2023 2024
-0.1
-0.05
0
0.05
0.1
0.15
Ini ial Values
COVID-19
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
2018 2019 2020 2021 2022 2023 2024
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
Ini ial Values
COVID-19
Wo ld ac i i y
In e na ional ade
Oil and Ene gy
Fiscal policy
Mone a y policy
Domes ic demand
Domes ic supply
Fig. 11 Coun e ac ual wi h shadow a es. No e: Real GDP g ow h and CPI in la ion a e shown as
pe cen age-poin de ia ions om hei s eady s a es, calib a ed o 1.25% and 2% pe yea , espec i ely.
0.01 on he y-axis co esponds o 1 pp
To explici ly accoun o UMP, his obus ness check in oduces a coun e ac ual using
shadow a es o p oxy bo h con en ional and uncon en ional in e en ions.
Following Hohbe ge e al. (2023), I use he es ima ed EA shadow a e om Wu
and Xia (2017,2016) as a measu e o UMP, eplacing he cons ained sho - e m a e
wi h he shadow a e when he economy ope a es a he ELB.21 Fo simplici y, he
es ima ed shadow a e is inco po a ed in o he baseline model’s es ima ed Taylo ule
wi hou e-es ima ing i s coe icien s.22
Figu e11 illus a es he decomposi ion o eal GDP g ow h and CPI in la ion om
2018 o 2023 unde he shadow a e model. The esul s show ha UMP measu es
posi i ely con ibu ed o GDP g ow h (un il 2020) and CPI in la ion (un il 2022) in
Ge many, indica ing a s onge s imulus han p edic ed by he es ima ed Taylo ule.
F om 2021 onwa d, UMP con ibu ions shi owa d mone a y igh ening, wi h a mo e
p onounced e ec compa ed o a sho - e m in e es a e cons ained by he ELB
(see Fig.6). This esul s in a sha pe nega i e impac o mone a y shocks on GDP
g ow h du ing 2021–2022. The ECB’s g adual phasing ou o UMP measu es in 2021
dampened hei con ibu ion o CPI in la ion, hough i emained posi i e. By 2022,
as in e es a es inc eased, mone a y policy’s con ibu ion o CPI in la ion app oached
ze o, aligning wi h he model’s es ima ed in e es a e ule. Inco po a ing UMP shocks
also al e s he con ibu ions o p i a e sa ings, in es men , and exchange a e shocks,
which would o he wise abso b omi ed UMP e ec s in a model wi h a binding ELB.
None heless, he di e ences in s anda d de ia ions be ween he wo model a ian s
a e ela i ely mino .
10 Conclusion
Thispape es ima esa h ee- egionDSGE model oanalyse hemac oeconomicd i e s
o he pandemic and in la ion su ge in Ge many. The esul s sugges a cen al ole o
lockdown shocks ia o ced sa ings in explaining he con ac ion o economic ac i i y
21 Shadow a e da a is a ailable a : h ps://si es.google.com/ iew/jingcyn hiawu/shadow- a es.
22 Shadow a es, de i ed om e m s uc u e models, align wi h he sho - e m policy a e unde no mal
condi ions and u n nega i e when he ELB binds. Fo u he discussion on he subs i u abili y be ween
policy a es and shadow a es, see, e.g., Hohbe ge e al. (2023).
123
25 Page 34 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
in Ge many du ing 2020, wi h signi ican s abilising e ec s om iscal policy mea-
su es. Global demand and supply shocks also a ec ed Ge many’s economic condi ions
du ing he pandemic.
The GDP eco e y om 2021 o 2023 e lec s a balance be ween domes ic and
o eign demand no malisa ion and a slowdown in in e na ional ade, exace ba ed by
supply chain bo lenecks. The su ge in CPI in la ion du ing 2021–2022 is p ima ily
a ibu ed o ising commodi y p ices and domes ic and o eign supply-side ac o s,
which mimic he e ec s o inc easing supply chain dis up ions. The inc ease in ene gy
p ices alone con ibu ed up o 4.5 pp o CPI in la ion in 2022, accoun ing o oughly
wo- hi ds o he in la ion su ge. In 2023, no malising commodi y p ices a e o se
by consump ion-speci ic p ice ma kups om e aile s, slowing he decline in in la-
ion a es. The es ima ion esul s align well wi h o -model indica o s, con i ming he
obus ness o he iden i ied shocks.
This analysis o e s a plausible na a i e o Ge many’s mac oeconomic de elop-
men s, highligh ing he impo ance o accoun ing o a ious domes ic and global
ac o s, as well as demand and supply dynamics, in unde s anding he signi ican
luc ua ions d i en by he COVID-19 pandemic and he subsequen in la ion su ge.
Appendix 1: Model desc ip ion
A.1 Households
The Rica dian households maximise he p esen alue o he expec ed s eam o u u e
u ili y, subjec o Eq.5, by choosing he amoun o consump ion, Cs
j, , and nex pe iod
asse holdings, B
j, ,BG
j, ,Sj, ,BW
j, . The esul ing FOCs a e:
λs
j, =Cs
j, −ε C
−h(Cs
−1−ε C
−1)−θ
,(A.1)
1=˜
β E λs
j, +1
λs
j,
(1+i
1+πC, a
+1,(A.2)
1=˜
β E λs
j, +1
λs
j,
(1+iG
)−αb0+εB

1+πC, a
+1,(A.3)
1=˜
β E λs
j, +1
λs
j,
(1+iS
+1)−αS0+εS

1+πC, a
l, +1,(A.4)
1=˜
β E λs
j, +1
λs
j,
(1+iW
)eRoW, +1
eRoW, −εbw
+αbw0+αbw1eRoW, NFA
PY
Y 
1+πC, a
+1,(A.5)
whe e αbw1eRoW, NFA
PY
Y cap u es a deb -dependen coun y isk p emium on ne o eign
asse holdings as ex e nal closu e o ensu e long- un s abili y (see Schmi -G ohe and
U ibe 2003; Adol son e al. 2008).
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 35 o 49 25
The op imali y condi ions a e simila o s anda d Eule equa ions, bu inco po a e
asse -speci ic isk p emia which depend on exogenous shocks εB
k ,εS
k ,εbwk .Com-
bining he Eule equa ion o he isk- ee bond (A.2) wi h (A.3), (A.4), and (A.5), we
ob ain he ollowing app oxima ed exp essions:
iG
=i
+ p emG
,(A.6)
iS
=i
+ p emS
,(A.7)
E eRoW, +1
eRoW, iW
=i
+ p emW
,(A.8)
whe e p emG
and p emW
a e isk p emia on domes ic go e nmen bonds and
o eign bonds, espec i ely, p emS
l, a e he coun y-speci ic isk p emia on domes ic
and o eign sha es, and p em a
a global inancial shock o he isk appe i e.
A.2 Fi ms
Following (Ro embe g 1982), i ms ace quad a ic adjus men cos s, adji, , measu ed
in e ms o p oduc ion inpu ac o s. Speci ically, he adjus men cos s a e associa ed
wi h he ou pu p ice, PY
i, , labou inpu , Ni, , capi al s ock and in es men , Ii, ,aswell
as capaci y u ilisa ion a ia ion, CUi, :
adjPY
i, =σYγP
2Y PY
i,
PY
i, −1
−exp(¯π)2
,(A.9)
adjN
i, =γN
2Y Ni,
Ni, −1
−exp(gpop)2
,(A.10)
adjI
i, =PI
PY
γI,1
2K −1Ii,
K −1
−δK
2+γI,2
2
(Ii, −Ii, −1exp(gY+gPI))2
K −1,
(A.11)
adjCU
i, =PI
PY
K o
i, −1γCU,1(CUi, −1)+γCU,2
2(CUi, −1)2,(A.12)
whe e γ-s cap u e he deg ee o adjus men cos s, ¯π,gpop,gY,gPIa e he s eady-s a e
g ow h a es o in la ion, popula ion, and coun y-speci ic GDP and in es men p ice
de la o , espec i ely. δK
= δis a unc ion o he dep ecia ion a e adjus ed o he
capi al end in o de o ha e ze o adjus men cos s on he end pa h.23
Gi en he Lag ange mul iplie associa ed wi h he echnology cons ain , μy, he
FOCs wi h espec o labou , capi al, in es men , and capaci y u ilisa ion a e gi en
23 We speci y δK
=exp(g¯
Y+GAPI0)−(1−δ),whe eg¯
Yand GAPI0 a e he global GDP end and
he in es men -speci ic echnology g ow h, espec i ely, so ha I
K−δk= 0 along he end pa h.
123
25 Page 36 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
by:
(1−τK)W
PY
=αμy
−εND
Y
N −FN −∂adjN
∂N
+E 1+πY
+1
1+is
+1
∂adjN
+1
∂N ,
(A.13)
Q =E 1+πY
+1
1+is
+1
PI
+1
PY
+1
PY
PI
τKδ−∂adjCU
∂K −1
+Q +1(1−δ) +(1−α)μY
+1
PY
+1
PI
+1
Yk +1
K o
,(A.14)
Q =1+γI,1(I +ε S
)
K −1−δK
+γI,2((I +ε S
)−(I −1+ε S
−1)exp(gY+gPI))
K −1
−E 1+πY
+1
1+is
+1
PI
+1
PY
+1
PY
PI
exp(gY+gPI)
·γI,2((I +1+ε S
+1)−(I +ε S
)exp(gY+gPI))
K ,(A.15)
μy
(1−α) Y
CU
PY
PI
=K o
−1γu,1+γu,2(CU −1),(A.16)
whe e Q =μ /PI
PY
ep esen s Tobin’s Q and Ac Pop is he ac i e labou o ce o
he domes ic coun y. Equa ion (A.13) cha ac e ises he op imal le el o labou inpu ,
aking in o accoun labou o e head. Equa ionsA.14 and A.15 de ine he Tobin’s Q,
which is equal o he eplacemen cos o capi al ( he ela i e p ice o capi al). ε S
is he
in es men -speci ic lockdown shock. Finally, Eq.A.16 desc ibes capaci y u ilisa ion,
whe e he le -hand side indica es he addi ional ou pu p oduced while he igh -hand
side cap u es he cos s o highe u ilisa ion a e.
Gi en he Ro embe g se -up and imposing he p ice symme y condi ion, PY
i, =
PY
, he FOC wi h espec o PY
i, yields he New Keynesian Phillips cu e:
μy
σY=(1−τK)(σY−1)+σYγPPY
PY
−1πY
−¯π
−σYγPE 1+πY
+1
1+is
+1
PY
+1
PY
Y +1
Y πY
+1−¯π+σYεμY
,(A.17)
whe e εμY
is he in e se o he ma kup shock.
123

In e na ional Economics and Economic Policy (2025) 22 :25 Page 37 o 49 25
Appendix 2: Addi ional esul s
Table 3 Selec ed calib a ed s uc u al pa ame e s
DE REA RoW
P e e ences
In e empo al discoun ac o β0.998 0.998 0.998
Sa e s sha e ωs0.61 1.00 1.00
Weigh o disu ili y o labou ωN2.5 −−
Deg ee o openness sM0.36 0.28 0.06
Impo sha e in consump ion sM,C0.22 0.17 0.05
Impo sha e in in es men sM,I0.31 −−
Impo sha e in go e nmen expendi u e sM,G0.31 −−
Impo sha e in expo sM,X0.26 0.31 0.15
P e e ence o impo s om REA sM,REA 0.33 −0.67
P e e ence o impo s om RoW sM,RoW 0.23 0.77 −
P e e ence o impo s om DE sM,DE −0.52 0.48
P oduc ion
Cobb-Douglas labou sha e α0.65 1.00 1.00
Dep ecia ion o p i a e capi al s ock δ0.014 −−
Elas ici y o subs i u ion be ween di e en ia ed goods σY6.50 −−
Sha e o commodi ies in o al ou pu sCO 0.06 0.04 0.05
Linea capaci y u ilisa ion adj. cos s γCU,10.03 −−
Fiscal policy
Consump ion ax τC0.20 −−
Co po a e p o i ax τK0.20 −−
Labou ax τN0.41 −−
De ici a ge (in % o GDP) De T0.50 −−
Deb a ge (in % o GDP) ¯
BG61.6 −−
S eady-s a e a ios
P i a e consump ion sha e C/Y0.55 0.68 0.72
P i a e in es men sha e I/Y0.19 −−
Go e nmen consump ion sha e G/Y0.19 −−
Go e nmen in es men sha e IG/Y0.02 −−
T ans e sha e T/Y0.17 −−
T ade balance sha e TB/Y0.04 −0.02 −0.02
Size o he coun y (% o wo ld) size 5.4 14.5 80.1
123
25 Page 38 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
Table 4 P io and pos e io dis ibu ion o es ima ed model pa ame e s in REA and RoW
P io dis ibu ion Pos e io dis ibu ion
Mean
Dis S .De REA RoW
Mone a y policy
In e es a e pe sis ence ρiG 0.85 0.91 0.95
0.05 (0.88, 0.93) (0.94, 0.96)
Response o in la ion ηi,φ G 2.00 1.78 1.77
0.20 (1.56, 2.19) (1.47, 1.91)
Response o GDP ηi,yG 0.10 0.05 0.07
0.04 (0.03, 0.11) (0.05, 0.15)
P e e ences
Consump ion habi pe sis ence hB 0.50 0.73 0.87
0.20 (0.72, 0.83) (0.85, 0.90)
Risk a e sion θG 1.50 1.50 1.29
0.20 (1.19, 1.71) (1.18, 1.72)
Phillips cu e coe icien φYG 0.025 0.04 0.06
0.01 (0.02, 0.05) (0.03, 0.07)
Impo p ice elas ici y σzG 2.00 3.13 1.28
0.40 (2.62, 3.88) (1.11, 1.43)
Oil p ice elas ici y σoG 0.5 0.31 0.12
0.1 (0.30, 0.35) (0.01, 0.29)
No e: Cols. (1)–(2) lis model pa ame e s. Cols. (3)–(4) indica e he p io dis ibu ion unc ion (B: Be a
dis ibu ion; G: Gamma dis ibu ion). Col. (5)–(6) show he mode and he 90% HPD in e als o he pos e io
dis ibu ions o REA and RoW model pa ame e s
Table 5 Selec ed es ima ed exogenous shock p ocesses o DE
P io dis ibu ion Pos e io dis ibu ion
Mean
Dis S .De DE
Au oco ela ions o o cing a iables
Subjec i e discoun ac o ρUC Be a 0.50 0.83
0.20 (0.75, 0.90)
In es men isk p emium ρSBe a 0.85 0.94
0.05 (0.88, 0.94)
Labou demand ρND Be a 0.50 0.78
0.20 (0.74, 0.83)
T ade sha e ρMBe a 0.50 0.91
0.20 (0.88, 0.95)
Go e nmen consump ion ρGBe a 0.50 0.97
0.20 (0.95, 0.98)
Go e nmen ans e s ρTBe a 0.50 0.94
0.20 (0.90, 0.95)
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 39 o 49 25
Table 5 con inued
P io dis ibu ion Pos e io dis ibu ion
Mean
Dis S .De DE
Commodi y impo s ρCO Be a 0.50 0.82
0.20 (0.76, 0.86)
P oduc i i y g ow h ρGA Be a 0.50 0.82
0.20 (0.94, 0.98)
In e na ional bond p e e ence ρBW
EA Be a 0.50 0.87
0.20 (0.71, 0.89)
S anda d de ia ions (%) o inno a ions o o cing a iables
Subjec i e discoun ac o εUC Gamma 1.00 1.74
0.40 (0.64, 2.50)
In es men isk p emium εSGamma 0.10 0.25
0.04 (0.20, 0.44)
P ice ma k-up εMUY Gamma 2.00 8.77
0.80 (5.39, 9.80)
Labou demand εND Gamma 1.00 2.81
0.40 (2.56, 2.94)
T ade sha e εMGamma 1.00 1.94
0.40 (1.74, 2.05)
In e na ional bond p e e ence εBW
EA Gamma 1.00 0.21
0.40 (0.15, 0.40)
Labou supply εUGamma 1.00 2.73
0.40 (1.94, 2.88)
Expo p ice εPX Gamma 1.00 0.49
0.40 (0.39, 0.59)
Go e nmen consump ion εGGamma 1.00 0.19
0.40 (0.16, 0.22)
Go e nmen ans e s εTGamma 1.00 0.15
0.40 (0.13, 0.17)
Commodi y impo s εCO Gamma 1.00 5.05
0.40 (4.02, 5.86)
P oduc i i y g ow h εGA Gamma 0.10 0.05
0.04 (0.02, 0.06)
P oduc i i y end εAGamma 0.10 0.02
0.04 (0.01, 0.05)
Mone a y policy εi
EA Gamma 1.00 0.10
0.40 (0.08, 0.11)
No e: Cols. (1)–(2) lis model pa ame e s. Cols. (3)–(4) indica e he p io dis ibu ion unc ion (B: Be a
dis ibu ion; G: Gamma dis ibu ion). Cols. (5) shows he mode and he 90% HPD in e als o he pos e io
dis ibu ions
123
25 Page 40 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
Table 6 Selec ed es ima ed exogenous shock p ocesses o REA and RoW
P io dis ibu ion Pos e io dis ibu ion
Mean
Dis S .De REA RoW
Au oco ela ions o o cing a iables
Subjec i e discoun ac o ρUC Be a 0.50 0.69 0.79
0.20 (0.59, 0.74) (0.73, 0.87)
P ice ma k-up ρYBe a 0.50 0.57 0.62
0.20 (0.33, 0.63) (0.52, 0.69)
T ade sha e ρMBe a 0.50 0.94 0.97
0.20 (0.90, 0.96) (0.95, 0.99)
Commodi y impo s ρCO Be a 0.50 0.90 −
0.20 (0.85, 0.96)
P oduc i i y g ow h ρGA Be a 0.50 0.93 0.94
0.20 (0.90, 0.95) (0.91, 0.95)
S anda d de ia ions (%) o inno a ions o o cing a iables
Subjec i e discoun ac o εUC Gamma 1.00 1.95 0.69
0.40 (1.53, 2.69) (0.46, 1.01)
P ice ma k-up εMUY Gamma 1.00 0.17 0.43
0.40 (0.14, 0.28) (0.34, 0.53)
T ade sha e εMGamma 1.00 3.14 2.89
0.40 (2.69, 3.42) (2.53, 3.16)
Commodi y impo s εCO Gamma 1.00 4.86 −
0.40 (4.02, 5.86)
P oduc i i y g ow h εGA Gamma 0.10 0.03 0.08
0.04 (0.03, 0.04) (0.07, 0.10)
Mone a y policy εiGamma 1.00 0.10 0.09
0.40 (0.08, 0.11) (0.08, 0.11)
No e: Cols. (1)–(2) lis model pa ame e s. Cols. (3)–(4) indica e he p io dis ibu ion unc ion (B: Be a
dis ibu ion; G: Gamma dis ibu ion). Cols. (5) shows he mode and he 90% HPD in e als o he pos e io
dis ibu ions
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 47 o 49 25
he obse ed DE da a pa e n o he es ima ion. GDP de la o s and ela i e p ices o
demand componen s a e compu ed as he a ios o he cu en -p ice alue o he chain-
indexed olume se ies. No e ha we obse e EA agg ega e a iables and compu e
model-consis en REA a iables gi en he size o Ge many.
Acknowledgemen s I hank he Edi o Joscha Beckmann as well as an anonymous e e ee o e y help ul
and cons uc i e commen s. I also hank Ma co Ra o o he ex ensi e discussions on he Global Mul i-
coun y (GM) model as well as Wa wick McKibbin and esea ch semina pa icipan s a he Munich
Uni e si y o Applied Sciences o e y help ul commen s and discussions.
Funding Open Access unding enabled and o ganized by P ojek DEAL.
Da a a ailabili y Theda aused o es ima iona ea ailableonopen-accessda abases. Theya ealso a ailable
om he co esponding au ho upon eques .
Decla a ions
Con lic o in e es The au ho decla es no compe ing in e es s.
Open Access This a icle is licensed unde aC ea i e Commons A ibu ion4.0In e na ionalLicense, which
pe mi s use, sha ing, adap a ion, dis ibu ion and ep oduc ion in any medium o o ma , as long as you gi e
app op ia e c edi o he o iginal au ho (s) and he sou ce, p o ide a link o he C ea i e Commons licence,
and indica e i changes we e made. The images o o he hi d pa y ma e ial in his a icle a e included
in he a icle’s C ea i e Commons licence, unless indica ed o he wise in a c edi line o he ma e ial. I
ma e ial is no included in he a icle’s C ea i e Commons licence and you in ended use is no pe mi ed
by s a u o y egula ion o exceeds he pe mi ed use, you will need o ob ain pe mission di ec ly om he
copy igh holde . To iew a copy o his licence, isi h p://c ea i ecommons.o g/licenses/by/4.0/.
Re e ences
Adjemian S, Juilla d M, Ka amé F, Mu schle W, P ei e J, Ra o M, Rion N, Villemo S (2024) Dyna e:
e e ence manual, e sion 6, Dyna e Wo king Pape s 80, CEPREMAP
Adol son M, Laséen S, Lindé J, Villani M (2008) E alua ing an es ima ed new Keynesian small open
economy model. J Econ Dyn Con ol 32:2690–2721
Albonico A, Calés L, Ca dani R, C oi o o O, Fe oni F, Gio annini M, Hohbe ge S, Pa a acchia B, Pe icoli
FM, Racibo ski R (2019) Compa ing pos -c isis dynamics ac oss Eu o A ea coun ies wi h he Global
Mul i-coun y model. Econ Model 81:242–273
A ce O, Cicca elli M, Mon es-Galdón C, Ko np obs A (2024) Wha caused he eu o a ea pos -pandemic
in la ion? Occasional Pape Se ies 343, Eu opean Cen al Bank
Ball LM, Leigh MD, Mish a MP (2022) Unde s anding U.S. in la ion du ing he COVID e a, IMF Wo king
Pape s 2022/208, In e na ional Mone a y Fund
Baye C, Bo n B, Lue icke R, Mülle GJ (2023) The co ona i us s imulus package: how la ge is he ans e
mul iplie . Econ J 133:1318–1347
Benigno G, Gio anni JD, G oen JJ, Noble AI (2022) The GSCPI: a new ba ome e o global supply chain
p essu es, FRB o New Yo k S a Repo
Benigno P, Egge sson GB (2023) I ’s baaack: he su ge in in la ion in he 2020s and he e u n o he
non-linea phillips cu e, NBER Wo king Pape s 31197, Na ional Bu eau o Economic Resea ch, Inc
Benigno P, Egge sson GB (2024) The slan ed-L Phillips cu e. AEA Pape s and P oceedings 114:84–89
Blancha d O, Galí J (2007) Real wage igidi ies and he new Keynesian model. J Money, C edi , Bank
39:35–65
Blancha d OJ, Be nanke BS (2023) Wha caused he US pandemic-e a in la ion? NBER Wo king Pape s
31417, Na ional Bu eau o Economic Resea ch, Inc
123

25 Page 48 o 49 In e na ional Economics and Economic Policy (2025) 22 :25
Bodná K, Gonçal es E, Gó nicka L, Koes e G (2023) Wage de elopmen s and hei de e minan s since
he s a o he pandemic. Econ Bull A ic 8
Bussiè e M, Callega i G, Ghi oni F, Ses ie i G, Yamano N (2013) Es ima ing ade elas ici ies: demand
composi ion and he ade collapse o 2008–2009. Am Econ J Mac oecon 5:118–151
Calés L, Pe icoli F, Ra o M (2017) Ro a ed slice sampling: applica ions o he Bayesian es ima ion o
DSGE models, mimeo, Eu opean Commission
Ca dani R, C oi o o O, Gio annini M, P ei e P, Ra o M, Vogel L (2022a) The eu o a ea’s pandemic
ecession: a DSGE-based in e p e a ion. J Econ Dyn Con ol 143
Ca dani R, Hohbe ge S, P ei e P, Vogel L (2022b) Domes ic e sus o eign d i e s o ade (im)balances:
how obus is e idence om es ima ed DSGE models? J In Money and Financ, 121
Ca dani R, P ei e P, Ra o M, Vogel L (2023) The COVID-19 ecession on bo h sides o he A lan ic: a
model-based compa ison, Eu opean Econ Re , 158
Chen W, Neg o M, Goyal S, Johnson A (2020) The New Yo k ed DSGE model o ecas —Decembe 2020,
Libe y S ee Economics Decembe , 23
Comin DA, Johnson RC, Jones CJ (2023) Supply chain cons ain s and in la ion, NBER Wo king Pape s
31179, Na ional Bu eau o Economic Resea ch, Inc
Co ado L, G assi S, Paolillo A (2021) Modelling and es ima ing la ge mac oeconomic shocks du ing he
pandemic, CREATES Resea ch Pape s 2021–08. Aa hus Uni e si y, Depa men o Economics and
Business Economics
C oi o o O, Gio annini M, Hohbe ge S, Ra o M, Vogel L (2020) Financial spillo e and global isk in a
mul i- egion model o he wo ld economy. J Econ Beha O gan 177:185–218
Da Sil a AD, Dossche M, D ehe F, Fo oni C, Koes e G (2020) Sho - ime wo k schemes and hei e ec s
on wages and disposable income. Econ Bull Boxes 4
di Gio anni J (2022) How much did supply cons ain s boos U.S. In la ion? Libe y S ee Economics
20220824, Fede al Rese e Bank o New Yo k
di Gio anni J, Kalemli-Özcan S, Sil a A, Yıldı ım MA (2023) Quan i ying he in la iona y impac o iscal
s imulus unde supply cons ain s. AEA Pape s and P oceedings 113:76–80
Dolls M, Fues C, Peichl A (2012) Au oma ic s abilize s and economic c isis: US s. Eu ope, J Public Econ
96:279–294
Fe oni F, Fishe JD, Melosi L (2024) Unusual shocks in ou usual models. J Mone Econ 147
Funke M, Te asa R (2022) Has Ge many’s empo a y VAT a es cu as pa o he COVID-19 iscal s imulus
boos ed g ow h? J Policy Model 44:450–473
Gaglia done L, Ge le M (2023) Oil p ices, mone a y policy and in la ion su ges, NBER Wo king Pape s
31263, Na ional Bu eau o Economic Resea ch, Inc
Ghomi M, Hu ado S, Mon e o JM (2024) Recen dynamics o in la ion in Spain. An analysis based on he
model by Blancha d and Be anke (2023), Occasional pape s 2404, Bank o Spain
Giannone D, P imice i G (2024) The d i e s o pos -pandemic in la ion, NBER Wo king Pape s 32859,
Na ional Bu eau o Economic Resea ch, Inc
Gio annini M, Hohbe ge S, Kollmann R, Ra o M, Roege W, Vogel L (2019) Eu o A ea and U.S. Ex e nal
Adjus men :The Role o Commodi yP ices and Eme gingMa ke Shocks. J In MoneyFinanc94:183–
205
Gio annini M, P ei e P, Ra o M (2021) E icien and obus in e ence o models wi h occasionally binding
cons ain s, Wo king Pape s 2021–03. Join Res Cen Eu Comm
Gue ie i L, Iaco iello M (2015) OccBin: a oolki o sol ing dynamic models wi h occasionally binding
cons ain s easily. J Mone Econ 70:22–38
Hale T, Ang is N, Goldszmid R, Ki a B, Pe he ick A, Phillips T, Webs e S, Came on-Blake E, Hallas
L, Majumda S, Ta low H (2021) A global panel da abase o pandemic policies (Ox o d COVID-19
Go e nmen Response T acke ). Na Hum Beha 5:529–538
Hansen N-J, Toscani F, Zhou J (2023) Eu o a ea in la ion a e he pandemic and ene gy shock: impo
p ices, p o i s and wages, IMF Wo king Pape 2023/131, In e na ional Mone a y Fund
Ha ding M, Lindé J, T aband M (2023) Unde s anding pos -COVID in la ion dynamics. J Mone Econ
140(Supplemen ):S101–S118
Hin e lang N, Moyen S, Röhe O, S ähle N (2023) Gauging he e ec s o he Ge man COVID-19 iscal
s imulus package. Eu Econ Re 154
Hohbe ge , S., R. P i is, and L. Vogel (2019): The mac oeconomic e ec s o quan i a i e easing in he eu o
a ea: e idence om an es ima ed DSGE model. J Econ Dyn Con ol 108
123
In e na ional Economics and Economic Policy (2025) 22 :25 Page 49 o 49 25
Hohbe ge S, Ra o M, Vogel L (2020) The eu o exchange a e and Ge many’s ade su plus. In Financ
23:85–103
Hohbe ge S, Ra o M, Vogel L (2023) The mac oeconomic e ec s o uncon en ional mone a y policy:
compa ing eu o a ea and US models wi h shadow a es. Econ Modell 127
Jo da O, Nechio F (2023) In la ion and wage g ow h since he pandemic. Eu Econ Re 156:104474
Mckibbin W, Fe nando R (2020) Global mac oeconomic scena ios o he COVID-19 pandemic, in COVID
ECONOMICS 39, CEPR P ess
Menz J-O (2024) Sou ces o pos -pandemic in la ion in Ge many and he eu o a ea: an applica ion o
Be nanke and Blancha d (2023), Technical Pape 02/2024, Deu sche Bundesbank, F ank u a. M
Neal R (2003) Slice sampling. Ann S a 31:705–741
Ne i S, Buse i F, Con li i C, Co sello F, Monache DD, Tagliab acci A (2023) Ene gy p ice shocks and
in la ion in he eu o a ea, Ques ioni di Economia e Finanza (Occasional Pape s) 792. Bank o I aly.
Econ Res In Rela A ea
Pasimeni P (2022) Supply o demand, ha is he ques ion: decomposing eu o a ea in la ion. In e economics:
Re Eu Econ Policy 57:384–393
Pisani M, Tagliab acci A (2024) Wha caused he pos -pandemic in la ion in I aly? An applica ion o
Be nanke and Blancha d (2023), Occasional pape s (ques ioni di economia e inanza) 851, Bank o
I aly
Planas C, Ra o M, Rossi A (2015) Slice sampling in Bayesian es ima ion o DSGE models, mimeo,
Eu opean Commission
Reis R (2022) The bu s o high in la ion in 2021–22: how and why did we ge he e? BIS Wo king Pape s
1060, Bank o In e na ional Se lemen s
Ro embe g JJ (1982) Monopolis ic p ice adjus men and agg ega e ou pu . Re Econ S ud 49:517–531
Schmi -G ohe S, U ibe M (2003) Closing small open economy models. J In Econ 61:163–185
Taylo JB (1993) Disc e ion e sus policy ules in p ac ice. Ca n-Roch Con Se Public Policy 39:195–214
Wu JC, Xia FD (2016) Measu ing he mac oeconomic impac o mone a y policy a he ze o lowe bound.
J Money, C edi , Bank 48:253–291
Wu JC, Xia FD (2017) Time- a ying lowe bound o in e es a es in Eu ope. Tech. ep, Chicago Boo h
Resea ch Pape No, pp 17–06
Publishe ’s No e Sp inge Na u e emains neu al wi h ega d o ju isdic ional claims in published maps
and ins i u ional a ilia ions.
123