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Trade Linkages, Balance Sheets, and Spillovers

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  • Selim Elekdag
  • Dirk Muir

Abstract

Germany and the Czech Republic, Hungary, Poland, and Slovakia (the CE4) have been in a process of deepening economic integration which has lead to the development of a dynamic supply chain within Europe—the Germany-Central European Supply Chain (GCESC). Model-based simulations suggest two key policy implications: First, as a reflection of strengthening trade linkages, German fiscal spillovers to the CE4 and more broadly to the rest of the euro area, have increased over time, but are still relatively small. This is explained by the supply chain nature of trade integration: final demand in Germany is not necessarily the main determinant of CE4 exports to Germany. Second, increased trade openness in both Germany and the CE4 implies a greater exposure of the GCESC to global shocks. However, owing to its strong fundamentals—including sound balance sheets and its safe haven status— Germany plays the role of a regional anchor of stability by better absorbing shocks from other trading partners instead of amplifying their transmission across the GCESC.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/210.

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Length: 29
Date of creation: 14 Oct 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/210

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Keywords: Trade integration; Germany; Czech Republic; Hungary; Poland; Demand; External shocks; Spillovers; Slovakia; vertical integration; vertical specialization; supply chain; fiscal policy; balance sheets; DSGE models;

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  1. Selim Elekdag & Ren� Lalonde & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2008. "Oil Price Movements and the Global Economy: A Model-Based Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 297-311, June.
  2. Elekdag, Selim & Tchakarov, Ivan, 2007. "Balance sheets, exchange rate policy, and welfare," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(12), pages 3986-4015, December.
  3. Derek Anderson & Ben Hunt & Mika Kortelainen & Michael Kumhof & Douglas Laxton & Dirk Muir & Susanna Mursula & Stephen Snudden, 2013. "Getting to Know GIMF," IMF Working Papers 13/55, International Monetary Fund.
  4. Sebastian Weber & Anna Ivanova, 2011. "Do Fiscal Spillovers Matter?," IMF Working Papers 11/211, International Monetary Fund.
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