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Investment and employment adjustment after unification : some results from a macroeconometric disequilibrium model

  • Radowski, Daniel
  • Smolny, Werner
  • Winker, Peter

The macroeconomic development in West Germany in the aftermath of unification was characterized by a boom period in 1990/1991, a deep recession in 1992/1993 and a slow recovery since then. In East Germany, in contrast, unification induced a breakdown of production and employment followed by a slow recovery starting in 1992. In this paper, a macroeconometric model is used to assess this development. In particular, estimation results for investment and employment adjustment after unification are reported. The estimates are based on a disequilibrium model formerly developed for West Germany and extended in this paper to cover also unified Germany. The results reveal that the adjustment of investment and employment can be analysed with the same theoretical model for West and East Germany. However, the adjustment speed for investment differs significantly at least in the early years after unification, while changes in the mismatch on the labour market and employment adjustment are less pronounced.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 99-56.

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Date of creation: 1999
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Handle: RePEc:zbw:zewdip:5269
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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  2. Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 17-26, January.
  3. Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 285-338.
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