Germany is the laggard of Europe, yet the country is world champion in merchandise exports. The paper tries to solve this theoretical and empirical puzzle by diagnosing a ’pathological export boom’and a ’bazaar effect’. Excessively high wages defended by unions and the welfare state...

The paper presents a general equilibrium model of a pure exchange economy with stochastic endowments, in which speculation in the forward market is profitable and stabilizes prices but is useless from a welfare point of view. Reconciling the Siegel paradox with the theory of incomplete markets,...