National economic policy simulations with global interdependencies: a sensitivity analysis for Germany

Policy simulations for national economies with econometric models in general are done using a stand alone national model with exogenous export values and import prices. In a globalised world such an exercise is critical, since the policy in question may change the export prices and the import volumes of the particular country and induce via international trade a change of the economic activities of the global economy and a feed back to the export values and import prices of the particular country. The paper at hand presents a sensitivity analysis for Germany comparing the impacts of a shock on investment in a stand alone simulation using the multisector model INFORGE with the results, which occur, if the same model is linked to the global multicountry/multisector model GINFORS endogenising Germany's export values and import prices. The results are striking: The effect on real GDP is 50% higher in the global simulation than in the stand alone case. Because of the specialisation in trade the differences on the sector level are even stronger.