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Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification

  • Harald Uhlig

This paper analyzes the cost of disinflation under real wage rigidities in a micro-founded New Keynesian model. Unlike Blanchard and Galí (2007) who carried out a similar analysis in a linearized framework, we take non-linearities into account. We show that the results change dramatically, both qualitatively and quantitatively, for the steady states and for the dynamic adjustment paths. In particular, a disinflation implies a prolonged slump without any need for real wage rigidities.

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File URL: https://www.ifw-members.ifw-kiel.de/publications/regional-labor-markets-network-externalities-and-migration-the-case-of-german-reunification-1/kap1311.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1311.

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Length: 18 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:kie:kieliw:1311
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  1. Michael C. Burda, 2006. "Factor Reallocation in Eastern Germany after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 368-374, May.
  2. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 53, pages 2341-2378 Elsevier.
  3. Fabio Canova & Morten Ravn, 2000. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 423-460, July.
  4. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  5. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, October.
    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, October.
  6. Merkl, Christian & Snower, Dennis J., 2006. "The Caring Hand that Cripples: The East German Labour Market after Reunification," CEPR Discussion Papers 5656, C.E.P.R. Discussion Papers.
  7. Jennifer Hunt, 2006. "Staunching Emigration from East Germany: Age and the Determinants of Migration," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 1014-1037, 09.
  8. Hans-Werner Sinn, 2000. "Germany's Economic Unification: An Assessment after Ten Years," NBER Working Papers 7586, National Bureau of Economic Research, Inc.
  9. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521570176.
  10. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
  11. Burda, Michael C., 2008. "What kind of shock was it? Regional integration and structural change in Germany after unification," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 557-567, December.
  12. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
  13. C. Monica Capra & Charles A. Holt, 1999. "Coordination," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 630-636, January.
  14. repec:spr:pharme:v:22:y:2004:i:4:p:225-244 is not listed on IDEAS
  15. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  16. Sinn, Gerlinde & Sinn, Hans-Werner, 1992. "Kaltstart. Volkswirtschaftliche Aspekte der Deutschen Vereinigung," Monograph, Mohr Siebeck, Tübingen, edition 2, number urn:isbn:9783161459429, May.
  17. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
  18. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521578967.
  19. Nicola Fuchs-Schundeln & Matthias Schundeln, 2005. "Precautionary Savings and Self-Selection - Evidence from the German Reunification "Experiment"," Harvard Institute of Economic Research Working Papers 2069, Harvard - Institute of Economic Research.
  20. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
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