German Unification: What Have We Learned from Multi-Country Models?

Gagnon, Joseph; Masson, Paul R.; McKibbin, Warwick J.

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German Unification: What Have We Learned from Multi-Country Models?

IMF Working Paper No. 96/43

38 Pages Posted: 15 Feb 2006

See all articles by Joseph Gagnon

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Warwick J. McKibbin

Australian National University

Date Written: May 1996

Abstract

This study reviews early simulations of the effects of German unification using three different rational-expectations multi-country models. Despite significant differences in their structures and in the implementations of the unification shock the models delivered a number of common results that proved reasonably accurate guides to the direction and magnitude of the effects of unification on key macroeconomic variables. Unification was expected to give rise to an increase in German aggregate demand that would put upward pressure on output inflation and the exchange rate and downward pressure on the current account balance. The model simulations also highlighted contractionary effects of high German interest rates on EMS countries.

JEL Classification: C52, E62, F02

Suggested Citation: Suggested Citation

Gagnon, Joseph and Masson, Paul R. and McKibbin, Warwick J., German Unification: What Have We Learned from Multi-Country Models? (May 1996). IMF Working Paper No. 96/43, Available at SSRN: https://ssrn.com/abstract=882943