How the Bundesbank really conducted monetary policy
AbstractPapers estimating the reaction function of the Bundesbank generally find that ist monetary policy from the 1970s to 1998 can well be captured by a standard Taylor rule according to which the central bank responds to the output gap and to deviations of inflation from target, but not to monetary growth. This result is at odds with the BundesbankÃÂ´s claim that it followed a strategy of monetary targeting. This paper analyses whether this apparent contradiction is due to (a) the use of ex post data which do not necessarily match policy makersÃ¢â¬â¢ real-time information sets and (b) the omission of important explanatory variables. Accordingly, we compile a real-time data set for Germany including the BundesbankÃ¢â¬â¢s own estimates of potential output and use it to reestimate the BundesbankÃ¢â¬â¢s reaction function. We find that the use of real-time data considerably changes the results. Moreover, when adding the change in the output gap as well as deviations of money growth from target to the set of explanatory variables, we find that both variables are highly significant. This suggests that the Bundesbank took its monetary targets seriously, but also responded to deviations of expected inflation and output growth from target
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Bibliographic InfoArticle provided by Elsevier in its journal The North American Journal of Economics and Finance.
Volume (Year): 16 (2005)
Issue (Month): 3 (December)
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Web page: http://www.elsevier.com/locate/inca/620163
Other versions of this item:
- Christina Gerberding & Franz Seitz & Andreas Worms, 2005. "How the Bundesbank really conducted monetary policy," Computing in Economics and Finance 2005 60, Society for Computational Economics.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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