## _wp13210

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---

### Executive summary: purpose and high-level findings
- Purpose:
  - Study the German-Central European Supply Chain (GCESC) linking Germany and the CE4 (the Czech Republic, Hungary, Poland, and Slovakia).
  - Two broad questions:
    - How has deeper supply chain integration affected the nature of spillovers over time from global and regional shocks? What role for policy?
    - How do German fundamentals affect spillovers to the supply chain; does Germany act as an anchor of stability?
- Method:
  - Counterfactual simulations using a six-region version of the IMF’s Global Integrated Monetary and Fiscal model (GIMF).
- High-level findings:
  - German fiscal stimulus is likely to have a relatively small impact on the CE4 and the rest of the euro area.
  - German spillovers to the CE4 have increased over time but remain relatively limited because increased intra-supply chain trade involves substantial intermediate goods trade—final demand in Germany is not necessarily the main determinant of CE4 exports to Germany.
  - Germany and the CE4 are more exposed to global shocks owing to greater trade openness and integration with the world and with each other.
  - Germany acts as a regional anchor of stability by absorbing shocks from other trading partners rather than amplifying transmission across the GCESC due to sound balance sheets and safe haven status.
  - Strengthening household, corporate, and sovereign balance sheets is important domestically and for spillovers; weaker balance sheets amplify domestic shocks and cross-border spillovers.

### Model: structure and calibration
- GIMF overview:
  - Multi-region DSGE model with optimizing agents and an annual frequency; some households are liquidity constrained (non-Ricardian features).
  - Firms produce tradable and nontradable intermediate goods; financial sector includes a procyclical financial accelerator following Bernanke, Gertler and Gilchrist (1999).
  - Annual version abstracts from oil prices.
- Assets and international finance:
  - Government debt is held domestically as nominal, non-contingent, one-period bonds in domestic currency.
  - Only internationally traded assets are nominal, non-contingent, one-period bonds denominated in U.S. dollars (issued by the U.S. government and by private agents in any region).
  - Equity is not traded in domestic financial markets; households receive lump-sum dividend payments.
- Calibration:
  - Six regions: (i) Germany, (ii) CE4, (iii) the euro area excluding Germany, (iv) the United State, (v) an emerging Asia block, and (vi) the rest of the world.
  - Trade matrix calibrated to match trade flows in 1996 and in 2011 (benchmark calibration), capturing final and intermediate goods trade and relative prices including exchange rates.
  - Illustrative counterfactual: fragile-Germany scenario—households more liquidity constrained, corporate sector more leveraged, government more indebted, and loss of safe haven status implying higher sovereign yields and higher corporate yields.

### Results — Spillovers and the changing supply chain
- Simulation setup:
  - Counterfactual simulations of 1 percent aggregate demand shocks (private consumption and investment) and a debt-financed two-year 1 percentage point increase in government consumption (fiscal stimulus), using trade matrices calibrated for 1996 and 2011.
- Aggregate demand shocks — headline effects:
  - Domestic impact:
    - A 1 percent aggregate demand shock yields a smaller contraction in German output in 2011 relative to 1996 because Germany’s export-to-GDP ratio rose to around 48 percent from 24 percent (Table 1), increasing leakage and exchange-rate-assisted net exports.
  - German spillovers to CE4:
    - Larger in 2011 than 1996 but still relatively small; increased intra-supply chain integration raised spillovers, yet intermediate-goods trade implies CE4 exports to Germany are not driven primarily by German final demand.
  - German spillovers to the rest of the euro area:
    - Remain negligible and unchanged over time because trade between Germany and the rest of the euro area grew less than GCESC trade and because the rest of the euro area is much larger economically.
  - Exposure to global shocks:
    - Both Germany and the CE4 experience larger downturns in 2011 than in 1996 from non-European aggregate demand shocks because both are more open and thus more sensitive to global activity; indirect intra-European slowdowns compound the effect.
  - Relative importance of non-European shocks vs. German shocks for CE4 in 2011:
    - Germany accounts for five percent of global GDP in 2011 while the rest of the world accounts for about 80 percent of worldwide output.
    - Greater openness of Germany, the CE4, and the rest of the euro area increases sensitivity to global cycles.
    - A greater share of CE4 exports depends on final demand in the rest of the world (value-added perspective) than on German final demand due to intermediate goods flows.
- Fiscal stimulus shocks — headline effects:
  - Fiscal policy shock: debt-financed two-year 1 percentage point increase in government consumption.
  - Simulated maximum impact of German government consumption on CE4 real GDP:
    - 1996: 0.13 percent deviation from baseline
    - 2011: 0.16 percent deviation from baseline
  - Broader historical deviations referenced:
    - 1996: 1.3 percent (reference point in text)
    - 2011: 0.7 percent deviation from baseline (decline from 1996)
  - Explanation: limited fiscal spillovers reflect the supply chain nature of regional trade integration—final demand in Germany is not the main determinant of CE4 exports to Germany.
  - Global/concerted stimulus: GCESC members, being more open, are more sensitive to a simultaneous increase in government spending by non-European regions.

### The role of balance sheets and Germany as a stabilizer
- Financial accelerator and balance-sheet amplification:
  - Weaker balance sheets amplify domestic impacts and cross-border spillovers through a stronger external finance premium and procyclical financial accelerator—greater corporate leverage increases sensitivity of the cost of external finance to indebtedness.
  - Weaker balance sheets lead to higher real cost of investment and sharper contractions following shocks.
  - Financial shock analyzed: 100 basis point exogenous increase in the corporate external finance (risk) premium.
    - Higher spreads increase borrowing costs, raise opportunity cost of investment, suppress capital expenditures; effects on GDP are more protracted than from aggregate demand shocks due to corporate deleveraging.
- Germany’s safe-haven and balance-sheet advantages:
  - Baseline: German balance sheets (non-financial corporate sector and households) appear generally healthy; Germany retains safe-haven status supporting public sector balance sheet soundness.
  - Divergence in sovereign spreads between Germany and other economies is roughly around 500 basis points.
  - Fragile-Germany illustrative calibration:
    - Sovereign debt-to-GDP ratio increased by 30 percentage points to match indebtedness of large European economies.
    - Corporate spreads assumed to increase by about 350 basis points total: 150 basis points transitory and 200 basis points more persistent (structural).
    - Robustness check: temporary increase in corporate spreads reduced to 100 basis points in alternative calibration.
  - Structural characteristics cited:
    - German economy is about 30 percent greater than the second largest economy in the euro area.
    - Germany’s openness is around 98 percent (exports plus imports as a percent of GDP).
    - Average openness ratio for the next three largest economies (France, Italy, and Spain) is around 60 percent.
- Spillovers when German fundamentals are weaker:
  - Aggregate demand shocks originating in Germany or the rest of the world produce much larger negative real GDP impacts when German balance sheets are more fragile.
  - Larger German contractions transmit to more pronounced declines in real GDP in the CE4 and the rest of the euro area.
  - A more fragile German economy is less able to absorb global shocks and may amplify cross-border transmission, especially to close trading partners.

### Key numeric and calibration points (as presented)
- GIMF regional calibration: six-region version including Germany, CE4, euro area excluding Germany, the United State, emerging Asia block, and rest of the world.
- Selected trade matrix values (exports in percent of nominal GDP unless otherwise stated):
  - Total exports 30.1 24.3 52.8 47.7
  - to CE4 1.4 4.5
  - to Germany 8.4 16.6
  - Final goods 21.4 17.8 38.9 35.0
  - to CE4 0.9 2.8
  - to Germany 6.0 11.2
  - Intermediate goods 8.7 6.5 13.9 12.3
  - to CE4 0.5 1.6
  - to Germany 2.4 5.4
  - Size (In percent of world GDP) 0.9 8.0 1.4 5.1
- Germany’s export-to-GDP ratio: rose to around 48 percent from 24 percent (Table 1).
- Germany’s share of global GDP in 2011: five percent; rest of the world: about 80 percent.
- Fiscal stimulus shock: debt-financed two-year 1 percentage point increase in government consumption.
- Aggregate demand shock used for peak-impact comparisons: 1 percent (private consumption and investment) shock.

### Policy implications
- German fiscal stimulus has limited spillovers to CE4 and the rest of the euro area; supply-chain composition (intermediate goods) dampens transmission via German final demand.
- Greater trade openness raises exposure to global shocks; policies should account for increased vulnerability to non-European demand shocks.
- Strengthening balance sheets across households, corporates, and sovereigns reduces domestic amplification and cross-border spillovers.
- Preserving safe-haven status and sound sovereign and corporate balance sheets in Germany provides stabilizing spillover benefits to the GCESC.

*Source: _wp13210 - References (PDF chapter/section) — content as provided.*

### References .............................................................................................................

### _wp13210 - References

### Executive summary: purpose and high-level findings
- Paper studies the German-Central European Supply Chain (GCESC) linking Germany and the CE4 (the Czech Republic, Hungary, Poland, and Slovakia).
- Two broad questions:
  - How has deeper supply chain integration affected the nature of spillovers over time from global and regional shocks? What role for policy?
  - How do German fundamentals affect spillovers to the supply chain; does Germany act as an anchor of stability?
- Method: counterfactual simulations using a six-region version of the IMF’s Global Integrated Monetary and Fiscal model (GIMF).
- Key summarized findings:
  - German fiscal stimulus is likely to have a relatively small impact on the CE4 and the rest of the euro area.
  - German spillovers to the CE4 have increased over time but remain relatively limited because increased intra-supply chain trade involves substantial intermediate goods trade—final demand in Germany is not necessarily the main determinant of CE4 exports to Germany.
  - Germany and the CE4 are more exposed to global shocks owing to greater trade openness and integration with the world and with each other.
  - Germany acts as a regional anchor of stability by absorbing shocks from other trading partners rather than amplifying transmission across the GCESC due to sound balance sheets and safe haven status.
  - Strengthening household, corporate, and sovereign balance sheets is important domestically and for spillovers; weaker balance sheets amplify domestic shocks and cross-border spillovers.

### Model: structure and calibration
- GIMF overview:
  - GIMF is a multi-region dynamic stochastic general equilibrium (DSGE) model with optimizing agents.
  - Households have finite planning horizons; some are liquidity constrained (non-Ricardian features).
  - Firms owned domestically produce tradable and nontradable intermediate goods; there is a financial sector incorporating a procyclical financial accelerator following Bernanke, Gertler and Gilchrist (1999).
  - An annual version of the model is used; this version abstracts from oil prices.
- Assets and international finance in GIMF:
  - Government debt is held domestically as nominal, non-contingent, one-period bonds in domestic currency.
  - The only assets traded internationally are nominal, non-contingent, one-period bonds denominated in U.S. dollars (issued by the U.S. government and by private agents in any region).
  - Equity is not traded in domestic financial markets; households receive lump-sum dividend payments.
- Calibration:
  - Six regions: (i) Germany, (ii) CE4, (iii) the euro area excluding Germany, (iv) the United State, (v) an emerging Asia block, and (vi) the rest of the world.
  - Trade matrix calibrated to match trade flows in 1996 and in 2011 (benchmark calibration) capturing final and intermediate goods trade and relative prices including exchange rates.
  - The model captures increased exports as a share of GDP in Germany and the CE4 and a large rise in exports to each other and in intermediate goods trade across the GCESC.
  - Illustrative counterfactual calibration: Germany with more fragile balance sheets—households more liquidity constrained, corporate sector more leveraged, government more indebted, and a loss of safe haven status implying higher sovereign yields and higher corporate yields in the scenario.

### Results — Spillovers and the changing supply chain
- Simulation approach:
  - Counterfactual simulations of 1 percent aggregate demand shocks (private consumption and investment) and a debt-financed two-year 1 percentage point increase in government consumption (fiscal stimulus), using trade matrices calibrated for 1996 and 2011.
- Aggregate demand shocks — headline effects:
  - Domestic impact: a 1 percent aggregate demand shock yields a smaller contraction in German output in 2011 relative to 1996 because Germany’s export-to-GDP ratio rose to around 48 percent from 24 percent (Table 1), increasing leakage and exchange-rate-assisted net exports.
  - German spillovers to CE4: larger in 2011 than 1996 but still relatively small; increased intra-supply chain integration raised spillovers, yet intermediate-goods trade implies CE4 exports to Germany are not driven primarily by German final demand.
  - German spillovers to the rest of the euro area remain negligible and unchanged over time because trade between Germany and the rest of the euro area grew less than GCESC trade and because the rest of the euro area is much larger economically.
  - Exposure to global shocks: both Germany and the CE4 experience larger downturns in 2011 than in 1996 from non-European aggregate demand shocks because both are more open and thus more sensitive to global activity; indirect intra-European slowdowns compound the effect.
  - Relative importance of non-European shocks vs. German shocks for CE4: spillovers to CE4 from the rest of the world are greater than those from Germany in 2011 because:
    - Germany accounts for five percent of global GDP in 2011 while the rest of the world accounts for about 80 percent of worldwide output.
    - Greater openness of Germany, the CE4, and the rest of the euro area increases sensitivity to global cycles.
    - A greater share of CE4 exports depends on final demand in the rest of the world (value-added perspective) than on German final demand due to intermediate goods flows.
- Fiscal stimulus shocks — headline effects:
  - Fiscal policy shock studied: debt-financed two-year 1 percentage point increase in government consumption (domestic fiscal stimulus).
  - Growth impact of domestic fiscal stimulus has changed over time (figure referenced): results indicate differences in domestic and cross-border responses between 1996 and 2011 calibrations consistent with the aggregate demand shock findings (exact peak impacts are shown in Figure 3 in the source).

### The role of balance sheets and Germany as a stabilizer
- Financial accelerator and balance-sheet amplification:
  - Weaker balance sheets amplify domestic impacts and cross-border spillovers through a stronger external finance premium and procyclical financial accelerator—greater corporate leverage increases sensitivity of the cost of external finance to indebtedness.
  - Weaker balance sheets lead to higher real cost of investment and sharper contractions following shocks.
- Germany’s safe-haven and balance-sheet advantages:
  - Germany’s sound balance sheets and safe haven status enable it to absorb shocks from other trading partners and reduce amplification across the GCESC.
  - Counterfactual scenario with more fragile German balance sheets (households more liquidity constrained, corporates more leveraged, government more indebted, and loss of safe-haven implying higher sovereign yields) shows weaker implicit stabilization benefits to the GCESC.
- Policy implication: strengthening household, corporate, and sovereign balance sheets domestically improves resilience and reduces negative spillovers to trading partners, especially in tightly linked supply-chain arrangements.

### Key numeric and calibration points (as presented)
- GIMF regional calibration: six-region version including Germany, CE4, euro area excluding Germany, the United State, emerging Asia block, and rest of the world.
- Table 1 (Summary of the Trade Matrix: 1996 versus 2011) (exports in percent of nominal GDP unless otherwise stated) — values as presented in source text:
  - Total exports 30.1 24.3 52.8 47.7
  - to CE4 1.4 4.5
  - to Germany 8.4 16.6
  - Final goods 21.4 17.8 38.9 35.0
  - to CE4 0.9 2.8
  - to Germany 6.0 11.2
  - Intermediate goods 8.7 6.5 13.9 12.3
  - to CE4 0.5 1.6
  - to Germany 2.4 5.4
  - Size (In percent of world GDP) 0.9 8.0 1.4 5.1
- Germany’s export-to-GDP ratio: rose to around 48 percent from 24 percent (Table 1).
- Germany’s share of global GDP in 2011: five percent; rest of the world: about 80 percent (as stated in text).
- Fiscal stimulus shock: debt-financed two-year 1 percentage point increase in government consumption.
- Aggregate demand shock used for peak-impact comparisons: 1 percent (private consumption and investment) shock.

### Policy implications (bulleted)
- German fiscal stimulus has limited spillovers to CE4 and the rest of the euro area; supply-chain composition (intermediate goods) dampens transmission via German final demand.
- Greater trade openness raises exposure to global shocks; policies should account for increased vulnerability to non-European demand shocks.
- Strengthening balance sheets across households, corporates, and sovereigns reduces domestic amplification and cross-border spillovers.
- Preserving safe-haven status and sound sovereign and corporate balance sheets in Germany provides stabilizing spillover benefits to the GCESC.

*Source: _wp13210 - References (PDF chapter/section) — content as provided.*

### 1.3 percent in 1996, in 2011 the impact has declined to a deviation from baseline of around

### _wp13210 - 1.3 percent in 1996, in 2011 the impact has declined to a deviation from baseline of around

### German fiscal spillovers
- German fiscal stimulus has limited spillovers to the CE4 and the rest of the euro area.
- Simulated maximum impact of German government consumption on CE4 real GDP:
  - 1996: 0.13 percent deviation from baseline
  - 2011: 0.16 percent deviation from baseline
- Comparison of broader historical deviations:
  - 1996: 1.3 percent (reference point in text)
  - 2011: 0.7 percent deviation from baseline (decline from 1996)
- Explanation: limited fiscal spillovers reflect the supply chain nature of regional trade integration—final demand in Germany is not the main determinant of CE4 exports to Germany.
- Policy implication: German fiscal stimulus is likely to have a relatively small impact on the CE4 and, more broadly, the rest of the euro area.
- Global/concerted stimulus: GCESC members, being more open, are more sensitive to a simultaneous increase in government spending by non-European regions.

### Financial shocks and the role of the financial accelerator
- Shock considered: 100 basis point exogenous increase in the corporate external finance (risk) premium.
- Transmission mechanism:
  - Higher spreads increase borrowing costs, raise opportunity cost of investment, and suppress capital expenditures.
  - Weaker activity impairs corporate balance sheets, increasing risk profiles and triggering endogenous increases in the external finance premium.
  - Effects on GDP from financial shocks are more protracted than from aggregate demand shocks due to the need for corporate deleveraging.
- Even small shocks can lead to disproportionate contractions in output when balance sheets are weak.

### The role of German balance sheets and a fragile-Germany scenario
- Baseline observation: German balance sheets (non-financial corporate sector and households) appear generally healthy; Germany retains safe-haven status supporting public sector balance sheet soundness.
- Notable regional dynamics:
  - Divergence in sovereign spreads between Germany and other economies is roughly around 500 basis points.
  - This divergence is associated with uptrends in household and corporate lending spreads in some large economies, dragging on consumption and investment growth.
- Illustrative fragile-Germany calibration:
  - Sovereign debt-to-GDP ratio increased by 30 percentage points to match indebtedness of large European economies.
  - Corporate leverage ratios increased to match higher regional levels.
  - Share of liquidity constrained households raised to replicate economies with less efficient capital markets.
  - Loss of safe-haven status assumed to raise sovereign yields and corporate borrowing rates.
  - Corporate spreads assumed to increase by about 350 basis points total:
    - 150 basis points transitory
    - 200 basis points more persistent (structural)
- Robustness sensitivity: temporary increase in corporate spreads reduced to 100 basis points in alternative calibration to test sensitivity.
- Key quantified structural characteristics cited:
  - German economy is about 30 percent greater than the second largest economy in the euro area.
  - Germany’s openness is around 98 percent (exports plus imports as a percent of GDP).
  - Average openness ratio for the next three largest economies (France, Italy, and Spain) is around 60 percent.

### Spillover effects when German fundamentals are weaker
- Simulations indicate:
  - Aggregate demand shocks originating in Germany or the rest of the world produce much larger negative real GDP impacts when German balance sheets are more fragile.
  - Larger German contractions transmit to more pronounced declines in real GDP in the CE4 and the rest of the euro area.
  - A more fragile German economy is less able to absorb global shocks and may amplify cross-border transmission, especially to close trading partners.
- Main qualitative message: weaker German balance sheets compromise resilience and increase regional spillovers.

### Summary and policy implications
- Evolving trade linkages through GCESC have increased German spillovers to the CE4 over time, but spillovers remain fairly limited due to supply-chain-based integration—final demand in Germany is not necessarily the main determinant of CE4 exports to Germany.
- Greater trade openness of Germany and the CE4 implies greater exposure of the GCESC to global shocks.
- Germany acts as a regional anchor of stability owing to sound balance sheets and safe-haven status; sound balance sheets generate domestic and cross-border benefits.
- Policy recommendation: strengthening household, corporate, and sovereign balance sheets is important for countries and their trading partners, and particularly important in a supply-chain arrangement where balance-sheet fragility can amplify spillovers.

*Source: IMF staff calculations.*

### Appendix Table 1. GIMF Trade Matrix Based on 1996 Data

### Appendix Table 1. GIMF Trade Matrix Based on 1996 Data
### Aggregate Indicators
- GDP (Percent of world nominal GDP): 17.7 1.4 13.5 5.1 40.7 21.6
- Population Size (Percent of world): 44.8 0.9 2.6 1.2 45.8 4.6
- Aggregate Exports: 26.1 52.8 27.0 47.7 19.2 15.7

### Aggregate Exports — destinations (Percent of nominal GDP unless otherwise stated)
- to Emerging Asia: ... 6.7 4.2 5.6 6.6 4.5
- to Central Europe: 40.1 ... 1.7 4.5 0.6 0.1
- to Rest of the Euro Area: 2.0 15.4 ... 19.1 4.5 1.3
- to Germany: 1.5 16.6 7.0 ... 2.1 0.7
- to Remaining Countries: 18.3 13.0 11.7 16.4 ... 9.2
- to United States: 4.2 1.1 2.4 2.1 5.5 ...

### Final Goods Exports
- Final Goods: 19.2 38.9 19.3 35.3 8.2 10.2
- to Emerging Asia: ... 4.5 3.0 3.8 1.6 2.4
- to Central Europe: 40.1 ... 1.1 2.8 0.3 0.1
- to Rest of the Euro Area: 1.5 11.6 ... 13.8 2.2 0.9
- to Germany: 1.1 11.2 4.9 ... 1.1 0.5
- to Remaining Countries: 13.0 10.8 8.6 13.3 ... 6.3
- to United States: 3.5 0.8 1.7 1.6 3.0 ...

### Intermediate Goods Exports
- Intermediate Goods: 6.8 13.9 7.7 12.3 11.0 5.5
- to Emerging Asia: ... 2.1 1.3 1.8 5.0 2.0
- to Central Europe: 40.0 ... 0.6 1.6 0.3 0.0
- to Rest of the Euro Area: 0.4 3.8 ... 5.3 2.3 0.4
- to Germany: 0.4 5.4 2.1 ... 1.0 0.2
- to Remaining Countries: 5.4 2.3 3.1 3.0 ... 2.9
- to United States: 0.7 0.3 0.7 0.5 2.4 ...

### Aggregate Imports (mirror structure)
- Aggregate Imports: 26.1 52.8 27.0 47.7 19.2 15.7
- from Emerging Asia: ... 1.9 2.6 5.1 8.0 3.4
- from Central Europe: 40.5 ... 1.6 4.5 0.4 0.1
- from Rest of the Euro Area: 3.2 16.5 ... 18.5 3.9 1.5
- from Germany: 1.6 16.6 7.3 ... 2.1 0.5
- from Remaining Countries: 15.2 16.6 13.5 16.8 ... 10.3
- from United States: 5.5 1.2 2.1 2.8 4.9 ...

### Final Goods Imports
- Final Goods: 10.4 33.0 16.5 30.4 13.9 10.1
- from Emerging Asia: ... 1.5 2.0 3.8 5.6 2.9
- from Central Europe: 40.4 ... 1.2 3.0 0.4 0.1
- from Rest of the Euro Area: 2.3 11.1 ... 12.9 2.8 1.1
- from Germany: 1.1 10.5 5.2 ... 1.7 0.4
- from Remaining Countries: 3.7 9.1 6.6 8.5 ... 5.7
- from United States: 3.0 0.8 1.4 2.2 3.3 ...

- consumption goods: 5.8 21.2 11.7 20.7 9.1 7.3
- investment goods: 4.6 11.8 4.7 9.7 4.7 2.8

### Intermediate Goods Imports
- Intermediate Goods: 15.7 19.8 10.6 17.3 5.4 5.7
- from Emerging Asia: ... 0.4 0.6 1.3 2.3 0.5
- from Central Europe: 40.2 ... 0.4 1.5 0.1 0.0
- from Rest of the Euro Area: 1.0 5.4 ... 5.6 1.0 0.4
- from Germany: 0.5 6.1 2.0 ... 0.4 0.1
- from Remaining Countries: 11.5 7.6 6.9 8.3 ... 4.6
- from United States: 2.5 0.3 0.7 0.7 1.5 ...

*Source: Authors' calculations.*

### Appendix Table 2. GIMF Trade Matrix Based on 2011 Data
### Percent of World Nominal GDP
- 1996 GDP: 8.4 20.9 15.0 88.0 41.8 425.7 1
- 2011 GDP: 17.67 1.39 13.50 5.13 40.67 21.64

(Note: formatting in source shows "1996 GDP8.420.9515.088.0041.8425.71" and "2011 GDP17.671.3913.505.1340.6721.64")

### National Expenditure Accounts
- Consumption: 59.5 62.4 57.3 62.3 56.5 67.5
  - liquidity-constrained: 21.6 17.8 10.2 11.2 16.8 11.2
  - forward-looking: 37.8 44.6 47.1 51.1 39.7 56.3
- Investment: 23.0 16.1 17.6 16.6 19.0 12.4
- Government Expenditures: 17.6 21.5 25.1 21.1 24.5 20.1
  - on consumption: 12.6 17.5 22.5 19.5 22.0 16.9
  - on investment: 5.0 4.0 2.6 1.6 2.5 3.2
- Net Exports: 0.0 0.0 0.0 0.0 0.0 0.0

### Factor Shares (percent of total)
- Tradables Production: Capital 53.9 43.5 45.1 44.1 47.2 39.5
- Tradables Production: Labor 46.1 56.5 54.9 56.0 52.8 60.5
- Nontradables Production: Capital 38.5 26.9 29.0 27.6 31.7 21.7
- Nontradables Production: Labor 61.5 73.1 71.0 72.4 68.3 78.3

### Assets and Debt
- Government Debt: 35.3 38.7 74.0 55.8 23.0 80.2
- government deficit: 1.6 1.7 3.3 2.5 1.0 3.9
- Corporate Debt: 94.1 65.9 72.0 67.9 77.7 50.7
  - tradables: 45.4 34.2 36.7 35.0 38.7 27.8
  - nontradables: 48.7 31.7 35.3 32.9 39.0 22.9
- Capital Stock: 183.5 128.5 140.5 132.5 151.6 99.0
- investment: 23.0 16.1 17.6 16.6 19.0 12.4
- Total Wealth: 791.9 906.7 994.4 1039.2 793.4 1035.3
- private saving: 24.6 17.8 20.9 19.1 20.0 16.3
- financial wealth: 130.1 105.1 146.7 124.3 101.2 131.6
- human wealth: 661.9 801.6 847.7 914.8 692.1 903.8
- dividends: 366.9 523.5 500.1 585.7 347.7 488.0
- permanent income: 295.0 278.1 347.6 329.1 344.4 415.8

### Interest Rates (Levels in percent)
- Nominal Short-Term (INT): 5.0 5.0 5.0 5.0 5.0 5.5
- Real Short-Term (RR): 3.0 3.0 3.0 3.0 3.0 3.0

### Fiscal Sector
- Government Spending: 25.5 20.2 39.6 38.9 30.9 24.8
- Gov't Consumption: 12.6 17.5 22.5 19.5 22.0 16.9
- Gov't Investment: 5.0 4.0 2.6 1.6 2.5 3.2
- Transfers: 8.0 -1.3 14.5 17.8 6.4 4.7
- Tax Revenue: 25.7 20.4 40.0 39.2 31.0 25.2
  - Labor: 6.0 22.3 22.3 24.3 13.3 14.9
  - Corporate: 3.5 2.2 2.2 2.2 3.5 2.7
  - Consumption: 9.9 11.0 11.0 10.8 9.4 4.3
  - Lumpsum: 6.3 -1.5 15.4 4.5 1.9 4.8 3.3

*Source: Authors' calculations.*

### Appendix Table 3. GIMF Macro Variables
### Elasticities and Preferences
- Elasticities of Substitution in Utility
  - Intertemporal: 0.5 0.5 0.5 0.5 0.5 0.5
  - Leisure and Consumption: 0.8 10.8 0.84 0.82 0.84 0.79 0.8  (note: source shows "0.810.840.820.840.790.80")
  - Elasticity of Labor Supply: 0.5 0.5 0.5 0.5 0.5 0.5

### Other Structural Parameters
- Habit persistence: 0.4 0.4 0.4 0.4 0.4 0.4
- Probability of Survival: 0.95 0.95 0.95 0.95 0.95 0.95
- Income Decline Rate: 0.95 0.95 0.95 0.95 0.95 0.95
- Marginal Propensity to Consume: 0.05 0.05 0.05 0.05 0.05 0.05
- Capital Depreciation: 0.10 0.10 0.10 0.10 0.10 0.1
- Share of LIQ Households: 0.50 0.40 0.25 0.25 0.40 0.25

### Financial Accelerator
- Borrower riskiness (both sectors): 0.45 0.45 0.45 0.45 0.45 0.45
- Cost of bankruptcy (both sectors): 0.36 0.36 0.36 0.36 0.36 0.36

### Markups and Prices
- Markups on Prices (in percent): Tradables and ntradables 20 20 20 20 20 20
- Real Wages: 10 10 10 10 10 10
- Imports: 2.5 2.5 2.5 2.5 2.5 2.5
- All others: 5 5 5 5 5 5

### Elasticities of Substitution
- Home versus Foreign: 1.5 1.5 1.5 1.5 1.5 1.5
- Among Foreign: 1.5 1.5 1.5 1.5 1.5 1.5
- Tradable/Nontradable: 0.5 0.5 0.5 0.5 0.5 0.5

### Home Bias
- Consumption: 0.7670 0.7500 0.9170 0.8760 0.8390 0.964
- Investment: 0.5440 0.6210 0.9030 0.8680 0.8150 0.935
- Intermediate: 0.5250 0.6320 0.8900 0.8710 0.8250 0.953

### Nominal Adjustment Costs
- Price of Imports: 3.2 3.2 16.0 16.0 3.2 32.0
- All other prices: 32.0 48.0 48.0 48.0 32.0 32.0

### Real Adjustment Costs
- OLG Consumption: 2 2 2 2 2 2
- All others: 1 1 1 1 1 1

### Policy Rules
- Monetary: weight on the lagged interest rate: 0.30 1.000 0.30 1.000 0.30 0.30
- inflation gap: 1.00 0.00 1.50 0.00 1.00 1.00
- weight on inflation:
  - contemporaneous: 0.25 0.25 0.25 0.25 0.25 0.25
  - 1 period ahead: 0.75 0.75 0.75 0.75 0.75 0.75
- nom. exchange rate target: 0.00 1000000.0 0.00 1000000.0 0.000 0.00
- Fiscal: weight on the output gap: 0.25 0.42 0.48 0.51 0.30 0.34

*Source: Authors' calculations.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13210.pdf_