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The Transmission of German Monetary Policy in the Pre-Euro Period

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  • Helmut Luetkepohl
  • Jürgen Wolters

Abstract

A small macroeconomic model is constructed to study the transmission of the monetary policy conducted by the Deutsche Bundesbank (DBB) since the middle of the 1970s. For this purpose quarterly, seasonally unadjusted data for the period from 1975 to 1998 are used, that is, the period until the introduction of the Euro is considered. A vector error correction model is constructed for the German monetary sector based on M3, GNP, an inflation rate, a long-term interest rate and a short-term rate which represents the policy variable of the DBB. Moreover, import price inflation is included as an exogenous variable to capture foreign effects. An impulse response analysis highlights the effects of changes in the short-term interest rate and shows the interaction of the main variables of the monetary sector.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 604.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_604

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Keywords: cointegration analysis; impulse response analysis; monetary policy; money demand; structural vector error correction model;

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References

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  1. Lutkepohl, Helmut & Saikkonen, Pentti, 2000. "Testing for the cointegrating rank of a VAR process with a time trend," Journal of Econometrics, Elsevier, Elsevier, vol. 95(1), pages 177-198, March.
  2. Issing, Otmar, 1997. "Monetary targeting in Germany: The stability of monetary policy and of the monetary system," Journal of Monetary Economics, Elsevier, Elsevier, vol. 39(1), pages 67-79, June.
  3. Katarina Juselius, 1997. "Changing Monetary Transmission Mechanisms within the EU," Discussion Papers, University of Copenhagen. Department of Economics 97-18, University of Copenhagen. Department of Economics.
  4. Lanne, Markku & Lutkepohl, Helmut, 2002. "Unit root tests for time series with level shifts: a comparison of different proposals," Economics Letters, Elsevier, Elsevier, vol. 75(1), pages 109-114, March.
  5. J. Wolters & T. Teräsvirta & H. Lütkepohl, 1996. "Modelling the Demand for M3 in the Unified Germany," SFB 373 Discussion Papers, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1996,24, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  6. Katarina Juselius, 1996. "An Empirical Analysis of the Changing Role of the German Bundesbank after 1983," Discussion Papers, University of Copenhagen. Department of Economics 96-18, University of Copenhagen. Department of Economics.
  7. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 57(6), pages 1361-1401, November.
  8. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(2), pages 153-62, April.
  9. JØrgen Wolters & Helmut LØtkepohl, 1998. "A money demand system for German M3," Empirical Economics, Springer, Springer, vol. 23(3), pages 371-386.
  10. Grayham E. Mizon & David F. Hendry, 1998. "Exogeneity, causality, and co-breaking in economic policy analysis of a small econometric model of money in the UK," Empirical Economics, Springer, Springer, vol. 23(3), pages 267-294.
  11. Michael Scharnagl, 1998. "The stability of German money demand: Not just a myth," Empirical Economics, Springer, Springer, vol. 23(3), pages 355-370.
  12. Benkwitz, Alexander & L tkepohl, Helmut & Wolters, J rgen, 2001. "Comparison Of Bootstrap Confidence Intervals For Impulse Responses Of German Monetary Systems," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 5(01), pages 81-100, February.
  13. K. Hubrich, 1996. "System estimation of the German money demand - a long-run analysis," SFB 373 Discussion Papers, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1996,77, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  14. repec:wop:humbsf:2001-5 is not listed on IDEAS
  15. Hansen, Gerd & Kim, Jeong-Ryeol, 1996. "Money and Inflation in Germany: A Cointegration Analysis," Empirical Economics, Springer, Springer, vol. 21(4), pages 601-16.
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Citations

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Cited by:
  1. Kai Carstensen, 2003. "Is European Money Demand Still Stable?," Kiel Working Papers, Kiel Institute for the World Economy 1179, Kiel Institute for the World Economy.
  2. Joseph P. Byrne & Roger Perman, 2006. "Unit Roots and Structural Breaks: A Survey of the Literature," Working Papers, Business School - Economics, University of Glasgow 2006_10, Business School - Economics, University of Glasgow.
  3. Oliver Holtemöller, 2003. "Money Stock, Monetary Base and Bank Behavior in Germany, Geldmenge, Geldbasis und Bankenverhalten in Deutschland," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 223(3), pages 257-278, May.

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