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German Unification: What Have We Learned From Multi-Country Models?

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

Abstract

This study reviews 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 reasonably accurate guides to the direction and magnitude of the effects of unification on key macroeconomic variables. 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. The model simulations also highlighted contractionary effects of high German interest rates on EMS countries.

Suggested Citation

  • Mr. Joseph E. Gagnon & Mr. Paul R Masson & Warwick J. McKibbin, 1996. "German Unification: What Have We Learned From Multi-Country Models?," IMF Working Papers 1996/043, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1996/043
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    References listed on IDEAS

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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. Mckibbin, W.J., 1990. "Some Global Macroeconomic Implications Of German Unification," Papers 81, Brookings Institution - Working Papers.
    3. Wyplosz, C., 1991. "A Note On the Real Exchange Rate Effect on German Unification," DELTA Working Papers 91-06, DELTA (Ecole normale supérieure).
    4. Hall, Stephen G, 1993. "Modelling Structural Change Using the Kalman Filter," Economic Change and Restructuring, Springer, vol. 26(1), pages 1-13.
    5. Adams, Gwyn & Alexander, Lewis & Gagnon, Joseph, 1993. "German unification and the European Monetary System: A quantitative analysis," Journal of Policy Modeling, Elsevier, vol. 15(4), pages 353-392, August.
    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. Charles Wyplosz, 1991. "On the real exchange rate effect of German unification," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 127(1), pages 1-17, March.
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    Cited by:

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    2. Edwin M. Truman, 2014. "The Federal Reserve engages the world (1970-2000): an insider's narrative of the transition to managed floating and financial turbulence," Globalization Institute Working Papers 210, Federal Reserve Bank of Dallas.
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    4. Robert Brooks & Robert Faff & David Sokulsky, 2005. "The stock market impact of German reunification: international evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 15(1), pages 31-42.
    5. McKibbin, Warwick J. & Wilcoxen, Peter J., 2013. "A Global Approach to Energy and the Environment," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 995-1068, Elsevier.
    6. John FitzGerald & Adele Bergin, 2004. "The Stability and Growth Pact: How much Co-ordination?," Papers WP153, Economic and Social Research Institute (ESRI).
    7. Warwick J. McKibbin & Jong Wha Lee & Weifeng Liu & Cheol Jong Song, 2018. "Modeling the Economic Impacts of Korean Unification," Asian Economic Journal, East Asian Economic Association, vol. 32(3), pages 227-256, September.
    8. Adam Triggs, 2023. "Promoting sustainable investment through financial architecture reform," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(2), pages 267-282.

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    More about this item

    Keywords

    WP; ERM country; aggregate demand; current account; ERM realignment; capital stock; ERM parity; ERM scenario; ERM crisis; marginal product of labor; physical capital; ERM currency; Inflation; Fiscal stimulus; Exchange rates; Income; Short term interest rates; Europe; Global;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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