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 standalone 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 feedback to the export values and import prices of the particular country. This paper presents a sensitivity analysis for Germany comparing the impacts of a shock on investment in a standalone 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-super-`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 standalone case. Because of the specialisation in trade the differences on the sector level are even stronger.