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Title:History, expectations, and public policy: Economic development in Eastern Germany PDF Logo
Authors:Schäfer, Andreas
Steger, Thomas M.
Issue Date:2010
Series/Report no.:CESifo working paper: Fiscal Policy, Macroeconomics and Growth 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.
Subjects:increasing returns to scale
capital mobility
multiple equilibria
history vs. expectations
economic policy
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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