Abstract
ABSTRACT We examine the impact of aggregate demand shocks on Germany’s trade balance and industry after the adoption of the Euro. Using a Structural Vector Autoregression we find that Germany’s trade balance and industry are highly responsive to aggregate demand shocks. As Germany’s income increases, this leads to an increase in imports and a gradual reduction in its trade balance. However, Germany’s export capacity stabilizes its trade balance. This is over a period of rapid globalization, technological progress confronting all economies, several global trade disruptions and with disturbances to crucial energy requirements for Germany’s industry and export sector.
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