Business cycle accounting for the German fiscal stimulus program during the Great Recession

Daniel Fehrle and Johannes Huber

No 339, Discussion Paper Series from Universitaet Augsburg, Institute for Economics

Abstract: We take the neoclassical perspective and apply the business cycle accounting methodas proposed by Chari, Kehoe, and McGrattan (2007, Econometrica) for the Great Recessionand the associated stimulus program in Germany 2008-2009. We include wedges to the variables government consumption, durables, investment, labor, net exports, and efficiency. The results suggest: The crisis was mainly driven by the efficiency wedge, followed by the net exports and the investment wedge. The government consumption wedge and in particular the durables wedge acted counter-cyclical. We attributethe latter to an internationally incomparably large cash for clunkers program and conclude that this subsidy on durable goods was more effective than pure government consumption. We introduce a strategy for likelihood maximization, which reliably and quickly locates the maximum; enables a detailed evaluation of the likelihood function and allows large robustness checks.

Keywords: fiscal stimulus; great Recession; business cycle accounting; maximum-likelihood (search for similar items in EconPapers)
JEL-codes: C32 E20 E32 H12 H31 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (1)

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Working Paper: Business cycle accounting for the German fiscal stimulus program during the Great Recession (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:aug:augsbe:0339

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