German Unification: What Have We Learned From Multi-Country Models?

Joseph Gagnon, Paul Masson and Warwick McKibbin

No 1996/043, IMF Working Papers from International Monetary Fund

Abstract: This study reviews 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 reasonably accurate guides to the direction and magnitude of the effects of unification on key macroeconomic variables. 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. The model simulations also highlighted contractionary effects of high German interest rates on EMS countries.

Keywords: WP; ERM country; aggregate demand; current account; ERM realignment; capital stock; ERM parity; ERM scenario; ERM crisis; marginal product of labor; physical capital; ERM currency; Inflation; Fiscal stimulus; Exchange rates; Income; Short term interest rates; Europe; Global (search for similar items in EconPapers)
Pages: 38
Date: 1996-05-01
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Citations: View citations in EconPapers (9)

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Chapter: German Unification: What Have We Learned from Multi-Country Models? (2019)
Journal Article: German unification: What have we learned from multi-country models? (1996)
Working Paper: German unification: what have we learned from multi-country models? (1996)
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