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© 2022 International Monetary Fund
WP/22/130
IMF Working Paper
European Department and Fiscal Affairs Department
Output Losses in Europe During COVID-19: What Role for Policies?
Prepared by Anil Ari, Jean-Marc B. Atsebi, Mar Domenech Palacios1
Authorized for distribution by Ivanna Vladkova Hollar
July 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: We use a decomposition methodology to analyze the factors underlying the differentiated output losses of European countries in 2020. Our findings are fourfold: First, 2020 growth outcomes can be explained by differences in mobility, underlying growth trends, and pre-pandemic country fundamentals. Second, fiscal and monetary policies helped alleviate output losses during the pandemic in all European countries but to a varying extent. Third, shallower recessions in emerging market economies in Europe can be attributed to higher underlying growth and younger populations. Fourth, fiscal multipliers were higher in countries where above-the-line measures accounted for a larger share of the total fiscal package, the size of the total fiscal package was smaller, and inequality and informality were greater, as well as in countries with IMF-supported program during the pandemic.
RECOMMENDED CITATION: Ari, A., Atsebi, J. M. B., & Domenech Palacios, M. (2022). Output Losses in Europe during COVID-19: What Role for Policies? IMF Working Paper, WP/22/130
| JEL Classification Numbers: | E52, E62, E65, E66, O52, O57 |
| Keywords: | COVID-19 crisis; output losses; monetary policy; fiscal policy; fiscal multipliers |
| Author’s E-Mail Address: | AAri@imf.org; JAtsebi@imf.org; mdmd3@cam.ac.uk |
| JEL Classification Numbers: | E52, E62, E65, E66, O52, O57 |
| Keywords: | COVID-19 crisis; output losses; monetary policy; fiscal policy; fiscal multipliers |
| Author’s E-Mail Address: | AAri@imf.org; JAtsebi@imf.org; mdmd3@cam.ac.uk |
Title Page
WORKING PAPERS
Output Losses in Europe during COVID-19: What Role for Policies?
Prepared by Anil, Ari, Jean-Marc B. Atsebi, Mar Domenech Palacios 1
Contents
I. Introduction
II. Data and stylized facts
A. Data
B. Stylized facts
III. Decomposition exercise
A. Methodology
B. Results
IV. Calibration exercise
A. Methodology
B. Results
V. An analysis of the determinants of fiscal multipliers
A. The role of the composition and types of fiscal policies
B. The role of inequality and informality
C. The role of IMF-supported programs
D. Differences in marginal fiscal multipliers
VI. Conclusion
References
Appendix
A previous version of this paper was circulated as Chapter 2 of the October 2021 Regional Economic Outlook for Europe, “Growth during the Pandemic”. The authors are grateful to Ivanna Vladkova Hollar, Petia Topalova Borissova, Jaewoo Lee and Jörg Decressin for their encouragement and insightful suggestions. The authors would also like to thank seminar participants at the IMF and at the Corvinus-LSE Workshop on the “COVID Puzzle of Emerging Europe” for helpful comments. Excellent research assistance was provided by Vizhdan Boranova, Sabiha Mohona and Samuel Victor Romero Martinez.
A previous version of this paper was circulated as Chapter 2 of the October 2021 Regional Economic Outlook for Europe, “Growth during the Pandemic”. The authors are grateful to Ivanna Vladkova Hollar, Petia Topalova Borissova, Jaewoo Lee and Jörg Decressin for their encouragement and insightful suggestions. The authors would also like to thank seminar participants at the IMF and at the Corvinus-LSE Workshop on the “COVID Puzzle of Emerging Europe” for helpful comments. Excellent research assistance was provided by Vizhdan Boranova, Sabiha Mohona and Samuel Victor Romero Martinez. Any views expressed are only those of the authors and do not represent the views of the IMF, its Executive Board or IMF management.