Gauging the Effects of the German COVID-19 Fiscal Stimulus Package

Temporary Super Depreciation Allowances for Green and Digital Investments

“…The inverse Frisch elasticity is calibrated to 𝜑 = 0.4, which is in line with the literature review provided by Whalen and Reichling (2017). The parameter 𝜈 𝑁 governing the intra-sectoral labor elasticity of substitution is set to 5 following Hinterlang et al (2021).…”

“…Similarly, Bouakez et al (2021) chose to impose perfect substitutability between labor supplies, and thus the labor disutility parameter is adjusted to 𝜒 = 3.57. The share of labor supplied to the miscellaneous sector 𝜔 𝑁 = 0.9 is calibrated following Hinterlang et al (2021). The fiscal policy parameters are set broadly in line with German data.…”

“…As is standard, the share of capital in the Cobb-Douglas production function is set at 𝛼 = 0.33. Based on an aggregation of the sectoral data inHinterlang et al (2021), the capital and labor factor intensities in the green and miscellaneous sectors are set to 𝛼 𝐻,𝑔 = 0.51 and 𝛼 𝐻,𝑚 = 0.6, respectively. The parameter governing the elasticity of substitution between intermediate goods varieties is set to 𝜖 = 4.33 in order to match a steady-state markup of 1.3.…”

“…The parameter governing the elasticity of substitution between intermediate goods varieties is set to 𝜖 = 4.33 in order to match a steady-state markup of 1.3. The Calvo parameter uses the standard calibration of 𝜃 = 0.75 so that prices remain constant for about four quarters.FollowingHinterlang et al (2021) andBouakez et al (2022), we impose a high degree of complementarity between intermediate inputs by setting the parameter 𝜈 𝐻 = 0.1. Additionally, we calibrate the intermediate input CES aggregates' distributional parameters to 𝜔 𝐻,𝑚 = 0.9 and 𝜔 𝐻,𝑔 = 0.6.…”

“…Turning to the production parameters, the parameter 𝜈 𝐶 governing the substitutability between green and miscellaneous consumption goods is set to 2 followingHinterlang et al (2021). The CES function parameter is set at 𝜔 𝐶 = 0.89.…”