(Since When) Are East and West German Business Cycles Synchronised?

Stefan Gießler,Katja Heinisch,Oliver Holtemöller

doi:10.1515/jbnst-2019-0026

Stefan Gießler, Katja Heinisch + Show 1 more

Open Access

https://doi.org/10.1515/jbnst-2019-0026

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Abstract

Abstract We analyze whether, and since when, East and West German business cycles are synchronised. We investigate real GDP, unemployment rates and survey data as business cycle indicators and we employ several empirical methods. Overall, we find that the regional business cycles have synchronised over time. GDP-based indicators and survey data show a higher degree of synchronisation than the indicators based on unemployment rates. However, synchronisation among East and West German business cycles seems to have become weaker again recently.

Highlights

Convergence between the East and the West German economies is a very important topic in German policy debates
The synchronisation among the East and West German business cycles has abated after the Great Recession, this finding has been identified by Grigorasand Stanciu (2016) for the Euro Area
The results show that the business cycle synchronisation is more pronounced for GDP variables and is less pronounced for indicators based on unemployment rates and business confidence indicators

Summary

Introduction

Convergence between the East and the West German economies is a very important topic in German policy debates. Several contributions within a special issue of this journal on 25 years of German Reunification (Pfeifer et al 2016) investigated core areas such as labor markets, productivity, trade, and convergence and found that there are still substantial differences between both parts of Germany (see Maseland 2014). Thirty years after the fall of the Berlin wall, East Germany is still structurally and economically different from West Germany in terms of GDP per capita, productivity and unemployment (Gropp/Heimpold 2019). GDP per capita in East Germany is still 20 % lower compared to West Germany. These differences are much larger than the differences between North and South Germany.

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