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

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

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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 96/43.

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Length: 38
Date of creation: 01 May 1996
Date of revision:
Handle: RePEc:imf:imfwpa:96/43
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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.).
  2. Mckibbin, W.J., 1990. "Some Global Macroeconomic Implications Of German Unification," Papers 81, Brookings Institution - Working Papers.
  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. 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.).
  5. Gwyn Adams & Lewis S. Alexander & Joseph E. 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.).
  6. 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.
  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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