Abstract

http://ssrn.com/abstract=1684441
 
 

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History, Expectations, and Public Policy: Economic Development in Eastern Germany


Andreas Schaefer


Center on Corporate Responsibility

Thomas Michael Steger


University of Leipzig/Institute for Theoretical Economics/Macroeconomics; CESifo (Center for Economic Studies and Ifo Institute)

September 29, 2010

CESifo Working Paper Series No. 3184

Abstract:     
Motivated by the process of economic development in Eastern Germany since the German reunification we set up a dynamic macroeconomic model of a small open economy where both capital and labor are mobile and there are increasing returns to scale at the aggregate level. The model features multiple equilibria as well as (local and global) indeterminacy. Expectations matter for resulting equilibrium dynamics, implying that economic confidence may be crucial for the process of economic development. Despite its simplicity, the model can replicate major empirical facts and bears a number of non-trivial implications.

Number of Pages in PDF File: 40

Keywords: increasing returns to scale, capital mobility, migration, multiple equilibria, indeterminacy, history vs. expectations, economic policy

JEL Classification: E60, H20, O40

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Date posted: September 30, 2010  

Suggested Citation

Schaefer, Andreas and Steger, Thomas Michael, History, Expectations, and Public Policy: Economic Development in Eastern Germany (September 29, 2010). CESifo Working Paper Series No. 3184. Available at SSRN: http://ssrn.com/abstract=1684441

Contact Information

Andreas Schaefer
Center on Corporate Responsibility ( email )
Künstlergasse 15 a
Zurich, 8002
Switzerland
Thomas Michael Steger (Contact Author)
University of Leipzig/Institute for Theoretical Economics/Macroeconomics ( email )
Grimmaische Str. 12
D-04109 Leipzig
Germany
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschinger Str. 5
Munich, DE-81679
Germany
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