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Measuring Monetary Policy in Germany: A Structural Vector Error Correction Approach

  • Imke Brüggemann
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    A structural vector error correction (SVEC) model is used to investigate several monetary policy issues. While being data-oriented the SVEC framework allows structural modeling of the short-run and long-run properties of the data. The statistical model is estimated with monthly German data for 1975-98 where a structural break is detected in 1984. After splitting the sample, three stable long-run relations are found in each subsample which can be interpreted in terms of a money-demand equation, a policy rule and a relation for real output, respectively. Since the cointegration restrictions imply a particular shape of the long-run covariance matrix this information can be used to distinguish between permanent and transitory innovations in the estimated system. Additional restrictions are introduced to identify a monetary policy shock. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2003.

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    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 4 (2003)
    Issue (Month): (08)
    Pages: 307-339

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    Handle: RePEc:bla:germec:v:4:y:2003:i::p:307-339
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