Germany’s Macroeconomic Drivers Through the COVID-19 Pandemic and Recovery Period

This paper estimates a three-region structural macroeconomic model to analyse the main drivers of GDP,
inflation, and wage growth through the COVID-19 pandemic and recovery period in Germany. By
incorporating COVID-related shocks, trade in commodities, and endogenous ELB periods, the estimation
results suggest: (i) the COVID-19 pandemic in 2020-21 was mainly driven by domestic and foreign
lockdown shocks (demand-driven), (ii) the inflation surge in 2021-22 was characterised by an increase in
commodity prices, a recovery of global demand, and pronounced supply-side factors, and (iii) wage
growth per hour was counterbalanced by competing demand and supply-side effects. Key estimated
shocks in the model closely match off-model indicators, supporting its empirical plausibility.