Description

Germany and the Czech Republic, Hungary, Poland, and Slovakia (the CE4) have been in aprocess of deepening economic integration which has lead to the development of a dynamicsupply chain within Europe—the Germany-Central European Supply Chain (GCESC).Model-based simulations suggest two key policy implications: First, as a reflection ofstrengthening trade linkages, German fiscal spillovers to the CE4 and more broadly to therest of the euro area, have increased over time, but are still relatively small. This is explainedby the supply chain nature of trade integration: final demand in Germany is not necessarilythe main determinant of CE4 exports to Germany. Second, increased trade openness in bothGermany and the CE4 implies a greater exposure of the GCESC to global shocks. However,owing to its strong fundamentals—including sound balance sheets and its safe haven status—Germany plays the role of a regional anchor of stability by better absorbing shocks fromother trading partners instead of amplifying their transmission across the GCESC.

Taxonomy

Economic policy , Fiscal policy

More publications in this series: Working Papers

More publications by: Selim Elekdag ; Dirk Muir