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The Inflation Aversion of the Bundesbank: A State Space Approach

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Author Info
Vladimir Kuzin
Abstract

A simple backward-looking Taylor rule is estimated in a time-varying coefficient framework with quarterly German data for the period 1975-1998. Markov switching models and the Kalman Filter are used to extract the unobservable paths of the coefficients. The main finding is that the inflation aversion of the Bundesbank was not constant over time and exhibits some sudden and large shifts during the period of monetary targeting. There are phases with low and with high inflation aversion. This could for example explain why the estimated value of the inflation coefficient in backward-looking Taylor rules often does not exceed one and so violates the implications of theoretical monetary policy models. Moreover, the results provide evidence that the Bundesbank followed the so-called "opportunistic approach" to disinflation

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 121.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:121

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Related research
Keywords: Taylor rule; state space models; Markov switching models; Kalman Filter;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
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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  1. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
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  2. Cukierman, A., 1999. "The Inflation Bias Result Revisited," Papers 38-99, Tel Aviv.
  3. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-27.

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