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Germany and the euro area: differences in the transmission process of monetary policy

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Author Info

  • K.S.E.M. Hubrich
  • P.J.G. Vlaar

Abstract

This study analyses the transmission of monetary policy in Germany for the EMS period in the framework of a structural vector error correction model (S-VECM) analysis. Three stable cointegration relationships are found: a money demand relation, an interest rate spread and a stationary real interest rate. Based on both contemporaneous and long run restrictions, five structural shocks to the economy are identified. In contrast to the euro area, output and inflation are not independent in the long run for Germany. In accordance with results for Europe, we do not find strong support for monetary targeting for Germany. Money seems not to be controllable and the leading indicator role of money for inflation is not detected.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 613.

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Date of creation: 2000
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Handle: RePEc:dnb:wormem:613

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Keywords: Monetary transmission; Germany; generalised common trends model;

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Cited by:
  1. Martha Misas A>rango & Enrique López Enciso & Juana Téllez Corredor & José Fernando Escobar Restrepo, 2005. "La Inflación Subyacente En Colombia: Un Enfoque De Tendencias Estocásticas Comunes Asociadas A Un Vec Estructural," BORRADORES DE ECONOMIA 003026, BANCO DE LA REPÚBLICA.
  2. Claus Brand & Nuno Cassola, 2000. "A money demand system for Euro area M3," Working Paper Series 39, European Central Bank.
  3. Nikolaus A. Siegfried, 2002. "An information-theoretic extension to structural VAR modelling," Econometrics 0203005, EconWPA.
  4. Claus Brand & Nuno Cassola, 2004. "A money demand system for euro area M3," Applied Economics, Taylor and Francis Journals, vol. 36(8), pages 817-838.
  5. Donnay, Marie & Degryse, Hans, 2001. "Bank lending rate pass-through and differences in the transmission of a single EMU monetary policy," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/121618, Katholieke Universiteit Leuven.
  6. Anna Piretti & Charles St-Arnaud, 2006. "Launching the NEUQ: The New European Union Quarterly Model, A Small Model of the Euro Area and U.K. Economies," Working Papers 06-22, Bank of Canada.

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