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German unification: what have we learned from multi-country models?

Joseph Gagnon, Paul Masson () and Warwick McKibbin ()

No 547, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This study reports on early simulations of the effects of German unification using three different rational-expectations multi-country models. Despite significant differences in their structures and in the implementations of the unification shock, the models delivered a number of common results that proved to be a reasonably accurate guide to the direction and magnitude of the effects of unification on most key macroeconomic variables. In particular, unification was expected to give rise to an increase in German aggregate demand that would put upward pressure on output, inflation, and the exchange rate, and downward pressure on the current account balance in Germany. The model simulations also highlighted the contractionary effects of high German interest rates on other member countries of the Exchange Rate Mechanism of the European Monetary System.

Keywords: Germany; Interest rates (search for similar items in EconPapers)
Date: 1996
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Journal Article: German unification: What have we learned from multi-country models? (1996) Downloads
Working Paper: German Unification; What Have We Learned From Multi-Country Models? (1996) Downloads
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