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

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  • Brüggemann Imke

    (Freie Universität Berlin, Berlin, Germany)

Abstract

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 moneydemand 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.

Suggested Citation

  • Brüggemann Imke, 2003. "Measuring Monetary Policy in Germany: A Structural Vector Error Correction Approach," German Economic Review, De Gruyter, vol. 4(3), pages 307-339, August.
    • Handle: RePEc:bpj:germec:v:4:y:2003:i:3:p:307-339
    DOI: 10.1111/1468-0475.00083
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    Cited by:

    1. Katrin Assenmacher-Wesche, 2008. "Modeling Monetary Transmission in Switzerland with a Structural Cointegrated VAR Model," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 144(II), pages 197-246, June.
    2. Uluc Aysun & Ryan Brady & Adam Honig, 2009. "Financial Frictions and Monetary Transmission Strength: A Cross-Country Analysis," Working papers 2009-24, University of Connecticut, Department of Economics, revised Jun 2010.

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