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The global economic implications of German unification

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Author Info

  • Lewis S. Alexander
  • Joseph E. Gagnon

Abstract

This paper uses a multi-country econometric model to assess the global impact of rapid economic integration of the two Germanys. The fundamental assumptions are that East Germany brings relatively more labor than capital to the union than does West Germany, and that the economic structure of a united Germany is essentially identical to that of pre-unification West Germany. In all of the simulations economic union leads to an acceleration of growth and investment in Germany, a real appreciation of the Deutsche­mark, and a reduction in Germany's current account surplus. The impact of German economic unification on other countries is relatively modest, as the additional investment demand is not large relative to global investment and a disproportionate share of that investment demand is met by domestic German savings.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1990/379/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1990/379/ifdp379.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 379.

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Date of creation: 1990
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Handle: RePEc:fip:fedgif:379

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Related research

Keywords: Germany;

References

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  1. Joseph E. Gagnon, 1989. "A forward-looking multicountry model: MX3," International Finance Discussion Papers 359, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Hughes Hallett, A. & Ma, Y. & Melitz, J., 1996. "Unification and the policy predicament in Germany," Economic Modelling, Elsevier, vol. 13(4), pages 519-544, October.
  2. Gagnon, Joseph E. & Masson, Paul R. & McKibbin, Warwick J., 1996. "German unification: What have we learned from multi-country models?," Economic Modelling, Elsevier, vol. 13(4), pages 467-497, October.
  3. Charles Wyplosz, 1991. "On the real exchange rate effect of German unification," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(1), pages 1-17, March.

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