German Labor Market and Fiscal Reforms 1999 to 2008: Can They Be Blamed for Intra-Euro Area Imbalances?

40 Pages Posted: 21 Jun 2016

See all articles by Niklas Gadatsch

Niklas Gadatsch

German Council of Economic Experts

Nikolai Stahler

Deutsche Bundesbank - Economics Department

Benjamin Weigert

University of Giessen - Department of Economics

Date Written: 2015

Abstract

In this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of observed imbalances in the Euro Area. Our simulations within a two-country monetary union DSGE model show that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area. Further simulations highlight the importance of increased savings preferences in Germany to explain the latter.

Keywords: Fiscal Policy, Labor Market Reforms, DSGE Modeling, Macroeconomics

JEL Classification: H2, J6, E32, E62

Suggested Citation

Gadatsch, Niklas and Stahler, Nikolai and Weigert, Benjamin, German Labor Market and Fiscal Reforms 1999 to 2008: Can They Be Blamed for Intra-Euro Area Imbalances? (2015). Bundesbank Discussion Paper No. 29/2015, Available at SSRN: https://ssrn.com/abstract=2797053 or http://dx.doi.org/10.2139/ssrn.2797053

Niklas Gadatsch (Contact Author)

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

Nikolai Stahler

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

Benjamin Weigert

University of Giessen - Department of Economics ( email )

Licher Str. 62
Giessen, Hessen D-35394
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
26
Abstract Views
335
PlumX Metrics