German Unification: Macroeconomic Consequences for the Country
Axel Lindner
F. Heinemann, U. Klüh, S. Watzka (eds): Monetary Policy, Financial Crises, and the Macroeconomy. Springer,
2017
Abstract
This paper shows basic macroeconomic consequences of the German unification for the country in time series spanning from 20 years before the event until 25 years thereafter. Essential findings can well be explained by elementary economic theory. Moreover, it is shown that the German economy had been off steady state already before unification in important aspects. In particular, a steep increase in the current account balance during the 1980s suggests that globalization strongly affected the German economy at that time. While unification stopped the trend to an ever more open economy and to a rising trade surplus for about 10 years, the fall of the iron curtain eventually even increased this trend in the long run.
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Economic Transition in Unified Germany and Implications for Korea
Hyung-Gon Jeong, Gerhard Heimpold
H.-G. Jeong and G. Heimpold (eds.): Economic Transition in Unified Germany and Implications for Korea. Policy References 17-13. Sejong: Korea Institute for International Economic Policy,
2017
Abstract
The reunification of Germany, which marked the end of the Cold War in the 20th century, is regarded as one of the most exemplary cases of social integration in human history. Nearly three decades after the German reunification, the economic and social shocks that occurred at the beginning of the reunification process have largely been resolved. Moreover, the unified Germany has grown into one of the most advanced economies in the world.
The unification process that Germany underwent may not necessarily be the way that the Republic of Korea would choose. However, the economic and social exchanges between East and West Germany prior to unification, and the cooperation in a myriad of policies based on these exchanges, served as the crucial foundation for unification. The case of Germany will surely help us find a better way for the re-unification of the Korean Peninsula.
In this context, this is the first edition of a joint research which provides diverse insights on social and economic issues during the process of unification. It consists of nine chapters whose main topics include policies on macroeconomic stabilization, the privatization of state-owned enterprises in East Germany, labor policies and the migration of labor, integration of the social safety nets of the North and South, and securing finances for reunification. To start with, the first part covers macroeconomic stabilization measures, which include policies implemented by the federal government of Germany to overcome macroeconomic shocks directly after the reunification. There was a temporary setback in the economy at the initial phase of reunification as the investment per GDP went down and the level of fiscal debt escalated, reverting to its original trend prior to the reunification. While it appears the momentum for growth was compromised by reunification from the perspective of growth rate of real GDP, this state did not last long and benefits have outpaced the costs since 2000.
In the section which examines the privatization of state-owned enterprises in East Germany, an analysis was conducted on the modernization of industrial infrastructure of East German firms. There was a surge in investment in East German area at the beginning stages but this was focused on a specific group of firms. Most of the firms were privatized through unofficial channels, with a third of these conducted in a management buy-out (MBO) process that was highly effective. Further analysis of a firm called Jenoptik, which was successfully bailed out, is incorporated as to draw implications of its accomplishments.
In the section on migration, we examine how the gap between the unemployment rates in the West and East have narrowed as the population flow shifted from the West to East. Consequently, there was no significant deviation in terms of the Gross Regional Domestic Product (GRDP) per capita in each state of East Germany. However, as the labor market stabilized in East Germany and population flows have weakened, the deviation will become larger. Meanwhile, if we make a prediction about the movement of population between the North and the South, which show a remarkable difference in their economic circumstances, a radical reunification process such as Germany’s case would force 7% of the population of the North to move towards the South. Upon reunification, the estimated unemployment rate in North Korea would remain at least 30% for the time being. In order to reduce the initial unemployment rate, it is crucial to design a program that trains the unemployed and to build a system that predicts changes in labor demand.
It seems nearly impossible to apply the social safety nets of the South to the North, as there is a systemic difference in ideologies. Taking steps toward integration would be the most suitable option in the case of the Koreas. We propose to build a sound groundwork for stabilizing the interest rates and exchange rates, maintain stable fiscal policies, raise momentum for economic growth and make sure people understand the means required to financially support the North in order to reduce the gap between the two.
This book was jointly organized and edited by Dr. Hyung-gon Jeong of the Korea Institute for International Economic Policy (KIEP) and Dr. Gerhard Heimpold of the Halle Institute for Economic Research (IWH). We believe that this report, which examines numerous social and economic agendas that emerged during the reunification of Germany, will provide truly important reference for both Koreas. It is also our view that it will serve as a stepping-stone to establish policies in regard to South-North exchanges across numerous sectors prior to discussions of reunification. KIEP will continue to work with IWH and contribute its expertise to the establishment of grounds for unification policies.
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Konjunktur aktuell: Aufschwung in Deutschland und in der Welt
Konjunktur aktuell,
No. 5,
2017
Abstract
Zur Jahreswende ist die deutsche Konjunktur nach wie vor kräftig. Das Bruttoinlandsprodukt dürfte im Jahr 2017 um 2,2% zunehmen, und weil in diesem Jahr deutlich weniger Arbeitstage anfallen als zuvor, beträgt die Zuwachsrate kalenderbereinigt sogar 2,5%. Der Aufschwung ist breit aufgestellt. Schon länger treibt die deutliche Zunahme der Beschäftigung die privaten Einkommen, den Konsum und den Wohnungsbau, der außerdem von den sehr nied-rigen Zinsen Rückenwind erhält. Zudem profitieren die deutschen Exporte zurzeit von der schwungvollen internationalen Konjunktur. Auch weil die Geldpolitik im Euroraum vorerst expansiv bleibt, ist damit zu rechnen, dass sich der Aufschwung im Jahr 2018 fortsetzt; die Produktion dürfte dann erneut um 2,2% zunehmen (auch kalenderbereinigt). Die Verbraucherpreisinflation ist in den Jahren 2017 und 2018 mit 1,7% moderat. Zwar nimmt der binnenwirtschaftliche Preisdruck zu, aber die die Effekte des Energiepreisanstiegs vom Jahr 2017 laufen im Jahr 2018 aus, und die Aufwertung des Euro im Sommer 2017 wirkt preissenkend. Die schon gegenwärtig niedrige Arbeitslosenquote geht im kommenden Jahr weiter zurück. Der Finanzierungssaldo des Staates fällt im Jahr 2018 mit 1,3% in Relation zum Bruttoinlandsprodukt fast so hoch wie im Vorjahr aus, wenn man keine neuen finanzpolitischen Maßnahmen unterstellt. Die ostdeutsche Wirtschaft dürfte in den Jahren 2017 und 2018 mit 2,1% bzw. 2,0% etwas langsamer expandieren als die gesamtdeutsche. Weil das Verarbeitende Gewerbe in Ostdeutschland nicht so exportorientiert ist wie das im Westen, profitiert es auch nicht ganz so stark von der gegenwärtig sehr kräftigen internationalen Konjunktur.
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19.12.2017 • 40/2017
The medium-term economic development in Germany from 2017 to 2022 and opportunities for fiscal policies of a new federal government
Due to the cyclical upswing in Germany, in case of unaltered legislation, the general government would achieve considerable budget surpluses in the years ahead. As a consequence, there is large fiscal scope for a new federal government. With the fiscal policy simulation model of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, the macroeconomic effects of various fiscal policy measures are analysed. The results show that additional government expenditures, like the expansion of social benefits, do have a stronger effect on GDP than revenue cuts, like for instance tax reliefs. „Due to the already high capacity utilisation, revenue cuts seem to be advantageous from a business cycle perspective. Moreover, a reduction of the high taxes and charges on labour would, in contrast to an expansion of social benefits, have a positive effect on potential output“, says Oliver Holtemöller, head of the Department of Macroeconomics and IWH vice president.
Oliver Holtemöller
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14.12.2017 • 39/2017
Cyclical upswing in Germany and in the world
At the turn of the year, the cyclical upswing in Germany continues. Gross domestic product is expected to increase by 2.2% in 2017, and because this year has seen significantly fewer working days than before, the rate of change amounts, adjusted for calendar effects, to even 2.5%. “The upswing is broad-based”, says Oliver Holtemöller, head of the Department Macroeconomics and IWH vice president. “For quite a long time now, significant increases in employment have been driving private incomes, consumption and housing construction. The latter was, in addition, stimulated by low interest rates.” Currently, German exports are benefiting from the vivid international economy. Not least since monetary policy in the euro area remains expansionary for the time being, we expect the upturn to continue in 2018 and production to increase again by 2.2%. Consumer price inflation is, with 1.7%, still moderate in both 2017 and 2018. Although domestic price pressures are on the rise, the effects of the energy price increase in 2017 expire in 2018, and the appreciation of the euro in the summer of 2017 will dampen price dynamics.
Oliver Holtemöller
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Macro-Financial Modelling of the Singapore Economy: a GVAR Approach
Alessandro Galesi, Filippo di Mauro
Monetary Authority of Singapore Macroeconomic Review,
October
2017
Abstract
Globalisation has greatly increased the degree of interdependence across countries. Macroeconomic policy must therefore take a global perspective, particularly in the case of small open economies such as Singapore. From a modeller’s point of view, this requires considering many countries, regions and markets, as well as multiple channels of transmission, including trade and financial linkages. Cross-country interdependencies are increasingly reflected in the effects of global shocks, to oil or food prices for example, as well as technology and policy uncertainty spillovers.
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Konjunktur aktuell: Deutsche Wirtschaft legt kräftig zu
Hans-Ulrich Brautzsch, João Carlos Claudio, Andrej Drygalla, Franziska Exß, Katja Heinisch, Oliver Holtemöller, Martina Kämpfe, Konstantin Kiesel, Axel Lindner, Jan-Christopher Scherer, Birgit Schultz, Matthias Wieschemeyer, Götz Zeddies
Konjunktur aktuell,
No. 4,
2017
Abstract
Im Sommer 2017 befindet sich die Weltwirtschaft im Aufschwung. Das deutsche Bruttoinlandsprodukt dürfte nach vorliegender Prognose im Jahr 2017 wie schon im Vorjahr mit 1,9% und im Jahr 2018 mit 2,0% expandieren. Die öffentlichen Haushalte erzielen dabei weiter zunehmende Überschüsse. Der Zuwachs der Produktion in Ostdeutschland dürfte im Prognosezeitraum (wie schon in den vergangenen drei Jahren) etwas über dem in Westdeutschland liegen.
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U.S. Monetary-Fiscal Regime Changes in the Presence of Endogenous Feedback in Policy Rules
Yoosoon Chang, Boreum Kwak
Abstract
We investigate U.S. monetary and fiscal policy regime interactions in a model, where regimes are determined by latent autoregressive policy factors with endogenous feedback. Policy regimes interact strongly: Shocks that switch one policy from active to passive tend to induce the other policy to switch from passive to active, consistently with existence of a unique equilibrium, though both policies are active and government debt grows rapidly in some periods. We observe relatively strong interactions between monetary and fiscal policy regimes after the recent financial crisis. Finally, latent policy regime factors exhibit patterns of correlation with macroeconomic time series, suggesting that policy regime change is endogenous.
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