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German unification: What have we learned from multi-country models?

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

This study reports on 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 to be a reasonably accurate guide to the direction and magnitude of the effects of unification on most key macroeconomic variables. In particular, 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 in Germany. The model simulations also highlighted the contractionary effects of high German interest rates on other member countries of the Exchange Rate Mechanism of the European Monetary System.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 13 (1996)
Issue (Month): 4 (October)
Pages: 467-497

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Handle: RePEc:eee:ecmode:v:13:y:1996:i:4:p:467-497
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Lewis S. Alexander & Joseph E. Gagnon, 1990. "The global economic implications of German unification," International Finance Discussion Papers 379, Board of Governors of the Federal Reserve System (U.S.).
  2. Gwyn Adams & Lewis Alexander & Joseph Gagnon, 1992. "German unification and the European monetary system: a quantitative analysis," International Finance Discussion Papers 421, Board of Governors of the Federal Reserve System (U.S.).
  3. Wyplosz, Charles, 1991. "A Note on the Real Exchange Rate Effect of German Unification," CEPR Discussion Papers 527, C.E.P.R. Discussion Papers.
  4. 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.
  5. Mckibbin, W.J., 1990. "Some Global Macroeconomic Implications Of German Unification," Papers 81, Brookings Institution - Working Papers.
  6. 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.).
  7. Hall, Stephen G, 1993. " Modelling Structural Change Using the Kalman Filter," Economic Change and Restructuring, Springer, vol. 26(1), pages 1-13.
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