Abstract
In this chapter a disequilibrium macroeconomic model of the German economy is presented. The model is specified in continuous time and is estimated from 1880 to 1979 on annual data. It explains the trends and fluctuations in the rate of capital accumulation, output, employment, and the balance-of-payments. Its long-run properties are founded in neoclassical theory. The main aims of the model are first, to explain the interdependence between the main economic aggregates in Germany during the last one hundred years and to show that despite enormous structural changes in the economy and changes in territory, the behaviour of the German private sector from 1880 to 1979 was stable. The model presented here and the description of the main economic developments presented in Chapter 1 are therefore highly complementary. The second aim is to test within the structural model the validity of the quantity theory of money as an hypothesis about the determination of the price level, and of the Fisher equation as an hypothesis about the determination of nominal interest rate, following Lucas’ (1980) suggestion. The third aim is to test by simulating the model to what extent the remarkable rate of growth of German real net national product per capita from 1950 to the end of the 1960s war affected previous war destructions and losses of territory.
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Notes
See also footnote b), Table 1.1
In 1923, the Ruhr was occupied by the French and Belgian armies; it was returned to Germany in 1925.
In this model the rest of the world is represented only by the United States. It would, in principle, be possible to gather long-term statistics of income, interest rates, and prices for the United Kingdom, France, and Italy. However, we do not think that this would substantially change the results of the model.
Currency is the relevant monetary concept on the demand side (equation 5.9), and the monetary based is the relevant concept on the supply side in equation (5.1b) (the quantity theory) and in equation (5.13). 5. Some growth in outside money occurs because of the different term structure of the assets and liabilities of commercial banks.
Putting it another way, in order to endogenise the exchange rate in a sample which includes both periods of fixed and flexible exchange rates, it would have been necessary to estimate a model which is non-linear in the logarithms of the variables.
See Bergstrom and Wymer (1978), Sommariva (1981) and Tullio (1981b).
The quantity theory states that: (1)where and v is the velocity of circulation of the monetary base. Since we have excluded the velocity of circulation from our equation the parameter of D In y has to be greater than one if velocity falls, because assuming that v = v(y) then (2)where v y is the absolute value of the elasticity of velocity of the monetary base (and not of currency) with respect to income.
The five dummy variables are: for the peak of the hyperinflation which is equal to 1 in 1923 and 0 otherwise, Q 24 for the stabilisation of 1924, which is equal to one for the years of autarky (1933–39),and for the disturbances related to the end of the war and to the division of Germany.
A twenty-year cycle, with constant amplitude, was also found by Bergstrom and Wymer (1976) for the UK.
See Borchardt (1982, 1985).
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© 1987 Andrea Sommariva and Giuseppe Tullio
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Sommariva, A., Tullio, G. (1987). An Annual Macroeconomic Disequilibrium Growth Model of the German Economy, 1880–1979. In: German Macroeconomic History, 1880–1979. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-06591-2_6
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DOI: https://doi.org/10.1007/978-1-349-06591-2_6
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