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Germany's Economic Unification: An Assessment after Ten Years

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  • Sinn, Hans-Werner

Abstract

The Asian currency crises have been introduced by many economists as evidence that almost any country could be vulnerable to speculative attacks and to contagion effects, even with apparently good economic fundamentals. These financial crises have also been interpreted by other economists as rational market reactions to the unsustainability of domestic macroeconomic policies or structural weaknesses. The objective of this paper is to evaluate the relative importance of macroeconomic unsustainability, financial vulnerability, and crisis contagion in a model that explains and predicts the Asian currency crises. Out-of-sample forecasts based on two-stage panel and logit regressions provide evidence of a pure contagion effect, which significantly worsened the crises. They also show that Indonesia was the only one of the six Asian nations examined (India, Indonesia, Malaysia, Philippines, South Korea, Thailand) that was in an unsustainable economic situation, and that the other five nations were only vulnerable to a currency crisis. Copyright 2002 by Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 10 (2002)
Issue (Month): 1 (February)
Pages: 113-28

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Handle: RePEc:bla:reviec:v:10:y:2002:i:1:p:113-28

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  1. Hans-Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
  2. Wolfgang Franz & Viktor Steiner, 2000. "Wages in the East German Transition Process: Facts and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 241-269, 08.
  3. Wolfgang Keller, 1997. "From Socialist Showcase to Mezzogiorno? Lessons on the Role of Technical Change from East Germany's Post-World War II Growth Performance," NBER Working Papers 6079, National Bureau of Economic Research, Inc.
  4. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
  5. Karl-Heinz Paque, 1999. "Zehn Jahre Aufbau Ost: eine Zwischenbilanz," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 52(34), pages 13-19, 02.
  6. Albert Müller, 2000. "Aufholprozess der ostdeutschen Wirtschaft stagniert," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 53(3), pages 9-16, 02.
  7. Henning Klodt, 1999. "Industrial Policy and the East German Productivity Puzzle," Kiel Working Papers 943, Kiel Institute for the World Economy.
  8. Sinn, Hans-Werner, 1999. "EU Enlargement, Migration and Lessons from German Unification," CEPR Discussion Papers 2174, C.E.P.R. Discussion Papers.
  9. Wolfgang Nierhaus, 1999. "Höhere Rentenanpassung in Ostdeutschland erforderlich?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 52(19), pages 20-24, October.
  10. Boltho, Andrea & Carlin, Wendy & Scaramozzino, Pasquale, 1996. "Will East Germany Become a New Mezzogiorno?," CEPR Discussion Papers 1256, C.E.P.R. Discussion Papers.
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