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Trade linkages, balance sheets, and spillovers: The Germany-Central European Supply Chain

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  • Elekdag, Selim
  • Muir, Dirk
  • Wu, Yiqun

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 (stemming from higher public consumption) 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.

Suggested Citation

  • Elekdag, Selim & Muir, Dirk & Wu, Yiqun, 2015. "Trade linkages, balance sheets, and spillovers: The Germany-Central European Supply Chain," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 374-387.
    • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:2:p:374-387
    DOI: 10.1016/j.jpolmod.2015.01.003
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    More about this item

    Keywords

    Germany; Supply chain; Vertical integration; DSGE model; Financial accelerator;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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