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

By Joseph E. Gagnon, Paul R Masson, Warwick J. McKibbin

May 1, 1996

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Joseph E. Gagnon, Paul R Masson, and Warwick J. McKibbin German Unification: What Have We Learned From Multi-Country Models?, (USA: International Monetary Fund, 1996) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Exchange rates, Financial services, Fiscal policy, Fiscal stimulus, Foreign exchange, Income, Inflation, National accounts, Prices, Short term interest rates

Keywords: Aggregate demand, Capital stock, Current account, ERM country, ERM crisis, ERM currency, ERM parity, ERM realignment, ERM scenario, Europe, Exchange rates, Fiscal stimulus, Global, Income, Inflation, Marginal product of labor, Physical capital, Short term interest rates, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/043
Stock No:

WPIEA0431996
ISBN:

9781451975147
ISSN:

1018-5941

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