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The Covid-19 Recession in Germany: A Macro-Epidemiological Analysis

Author

Listed:
  • Krause Willi

    (Barcelona School of Economics, Barcelona, Spain)

  • Costa Luís F.

    (ISEG Lisbon School of Economics & Management, Universidade de Lisboa, Lisbon, Portugal)

  • Costa Filho João Ricardo

    (Fundação Getúlio Vargas, São Paulo, Brazil)

Abstract

What is the contribution of containment policies to output fluctuations in Germany during the COVID-19 pandemic? We extend 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 labor-supply 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, laissez-faire 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 F. & Costa Filho João Ricardo, 2026. "The Covid-19 Recession in Germany: A Macro-Epidemiological Analysis," German Economic Review, De Gruyter, vol. 27(3), pages 231-281.
    • Handle: RePEc:bpj:germec:v:27:y:2026:i:3:p:231-281:n:1001
    DOI: 10.1515/ger-2024-0078
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    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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