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Modeling German unification in a disequilibrium framework

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

Abstract

Unification fundamentally changed the terms of quantitative macroeconomic analysis for Germany. Two main areas concerned are data availability for the eastern part of Germany and structural changes within the behavioural equations after unification. Our paper presents results from the estimation of a macroeconometric disequilibrium model formerly developed for West Germany. The challenge is to handle the structural break in the time series and the economic model by applying a SUR estimator for West Germany and the Federal Republic of Germany, respectively. The main focus here is the modeling of investment expenditures and employment adjustment. The empirical results are encouraging and show that the disequilibrium model is flexible enough to analyze the changes induced by unification. In particular, our results reveal that most behavioural relationships remained fairly stable when switching from West Germany to the Federal Republic of Germany. One notable exception is investment behaviour which { during the first years after unification { was strongly affected by fiscal incentives in East Germany. Preliminary policy simulations show effects of these fiscal incentives and the demand shock to the West German economy. The simulated responses depend on the prevailing regimes on goods and labour markets.

Suggested Citation

  • Winker, Peter & Smolny, Werner & Radowski, Daniel, 1999. "Modeling German unification in a disequilibrium framework," ZEW Discussion Papers 99-61, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:5274
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    References listed on IDEAS

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    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    2. Radowski, Daniel & Smolny, Werner & Winker, Peter, 1999. "Investment and employment adjustment after unification : some results from a macroeconometric disequilibrium model," ZEW Discussion Papers 99-56, ZEW - Leibniz Centre for European Economic Research.
    3. Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 39(1), pages 17-26.
    4. 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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    Cited by:

    1. Winker, Peter & Beck, Martin, 2000. "International spillovers and feedback: Modelling in a disequilibrium framework," ZEW Discussion Papers 00-36, ZEW - Leibniz Centre for European Economic Research.
    2. Beck, Martin & Winker, Peter, 2004. "Modeling spillovers and feedback of international trade in a disequilibrium framework," Economic Modelling, Elsevier, vol. 21(3), pages 445-470, May.

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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