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Analyzing the Economic Resilience: Insights from the Burda/Hunt Paper

This comprehensive discussion reviews Burda and Hunt's analytical paper, focusing on factors driving economic resilience in Germany during the Great Recession. Key findings highlight the roles of expectations, wage moderation, and sector-specific shocks. It questions whether a narrow examination of stylized facts can capture the broader economic impact and trends, particularly in different sectors such as manufacturing versus services. The paper's insights into private and public sector strategies, as well as the influence of institutions on labor dynamics, provide a nuanced understanding of the crisis's effects.

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Analyzing the Economic Resilience: Insights from the Burda/Hunt Paper

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  1. Discussion: Burda/Hunt Helge Berger

  2. In a nutshell • A very good and comprehensive paper that takes a look at data, model, and institutions • Miracle decomposition 40 percent = expectations 20 percent = wage moderation 40 percent = other • private sector working time accounts • public sector short time work • ?

  3. Questions • Too narrow look at stylized facts? • Asking a lot of expectations? • Stress sectoral nature of shock enough? • Missing a longer term trend? • Coherent story including all relevant institutions?

  4. Only DEU vs. US?

  5. Boom/bust countries vs. others!

  6. (Some qualifications…) Source: Schindler (2011).

  7. Expectations over-stressed? • Firms first underestimate the resilience of the German economy (explaining ‘underhiring’ prior to the crisis)… • …but then are firmly convinced that the “great recession” will be quite short (explaining ‘underfiring’ during the crisis) • Too strong assumptions?

  8. Sectoral shock under-stressed? • For DEU, shock was very specific • Would expectations have mattered as much in services sector? • Manufacturing • Longer planning horizon • Larger skilled worker constraint • Higher capacity for time accounts

  9. Missing an improving trend… Simulations* Source: Schindler (2011), Lam (2011) *Search model: u_t+1 = u_t (1-a) + (1-u_t) d (w/ d=1/2; u_ss; a)

  10. …missing employment impact? • Counterfactual would be “better” than actual employment figures, leading to a larger notional loss during ‘grand recession’ • Estimates: • Pre-crisis unemployment = 7.2 percent • Crisis peak (so far): 7.6 percent • Simulated: about 8.2 percent

  11. Missing institutions? • Fiscal policy, unions,… • Labor courts (B/Danninger 2006; B/Neugart 2011a/b)

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