Open Access

Daniel Fehrle, Johannes Huber

• We take the neoclassical perspective and apply the business cycle accounting method as proposed by Chari, Kehoe, and McGrattan (2007, Econometrica) for the Great Re- cession and the associated stimulus program in Germany 2008-2009. We include wedges to the variables government consumption, durables, investment, labor, net ex- ports, and efficiency. The results suggest: The crisis was mainly driven by the efficiency wedge, followed by the net exports and the investment wedge. The government con- sumption wedge and in particular the durables wedge acted counter-cyclical. We at- tribute the latter to an internationally incomparably large cash for clunkers program and conclude that this subsidy on durable goods was more effective than pure gov- ernment consumption. We introduce a strategy for likelihood maximization, which reliably and quickly locates the maximum; enables a detailed evaluation of the likelihood function and allows large robustness checks.