Economic Implications of German Unification for the Federal Republic and the Rest of the World

September 1, 1990

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The economic effects of German unification are first discussed in the context of a global saving/investment model. Next, simulations of MULTIMOD are presented, suggesting for the FRG an initial increase in long-term real interest rates equal to 3/4 of a percentage point, increased output, a temporary half-point rise in inflation, a modest real appreciation of the deutsche mark, and a reduction of the (combined GDR and FRG) current account surplus equal to 2 percent of GNP. Effects on the rest of the world seem to be relatively small. Different policies are examined within the EMS, and other simulation studies are surveyed.

Subject: Exchange rates, Financial services, Foreign exchange, Inflation, Potential output, Prices, Production, Real exchange rates, Real interest rates

Keywords: differential vis-à-vis Germany, ERM country, Europe, Exchange rates, fledgling FRG, FRG variable, FRG's level, GDP deflator, GDR economy, GDR economy to a market economy, GDR government, GDR model, GDR to the FRG, GDR trade deficit, Global, government spending, Inflation, monetary policy, Potential output, Real exchange rates, Real interest rates, WP

Pages:
54
Volume:
1990
DOI:
https://doi.org/10.5089/9781451954197.001
Issue:
085
Series:
Working Paper No. 1990/085
Stock No:
WPIEA0851990
ISBN:
9781451954197
ISSN:
1018-5941

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