Germany s dependence on the economic situation in the U.S. is less crucial than generally assumed
In the context of the recent cyclical downturn in Germany it has often been argued that Germany depends more than other European countries on international economic developments. In this article it is investigated whether empirical support can be found for this proposition. Moreover, it is explored whether this relation has changed over time. For this purpose, vector autoregressive (VAR) models are applied to the output gaps of different economies. It is shown that in the seventies and eighties, the transmission of business cycle shocks was more pronounced to Germany than to the other EU countries. Since the middle of the nineties, no such differences can be detected. Furthermore, since the middle of the nineties, the effects of shocks from abroad on the German business cycle have been significantly more short-lived than before.