Economic Implications of German Unification for the Federal Republic and the Rest of the World

Paul Masson and Guy Meredith

No 1990/085, IMF Working Papers from International Monetary Fund

Abstract: The economic effects of German unification are first discussed in the context of a global saving/investment model. Next, simulations of MULTIMOD are presented, suggesting for the FRG an initial increase in long-term real interest rates equal to 3/4 of a percentage point, increased output, a temporary half-point rise in inflation, a modest real appreciation of the deutsche mark, and a reduction of the (combined GDR and FRG) current account surplus equal to 2 percent of GNP. Effects on the rest of the world seem to be relatively small. Different policies are examined within the EMS, and other simulation studies are surveyed.

Keywords: WP; monetary policy; GDR economy; government spending; GDR to the FRG; differential vis-à-vis Germany; ERM country; GDR trade deficit; fledgling FRG; GDR government; GDR economy to a market economy; FRG variable; GDP deflator; GDR model; FRG's level; Inflation; Exchange rates; Real interest rates; Real exchange rates; Potential output; Global; Europe (search for similar items in EconPapers)
Pages: 54
Date: 1990-09-01
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