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Predictability of future economic growth and the credibility of monetary regimes in Germany, 1870-2003

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  • Markus Baltzer
  • Gerhard Kling

Abstract

Our study tries to quantify the predictability of economic growth and links it to the capability of regimes to fight against inflation. A regime with a high persistence of inflation and, hence, low credibility exhibits a high level of predictability of economic growth using the yield curve as indicator. Based on structural VAR models, we evaluate the credibility of monetary regimes in Germany from 1870 to 2003. The period of the Classical Gold Standard exhibited the highest credibility compared to the interwar period, the Bretton Woods and free float era. The reliability of the Bretton Woods agreement deteriorated years before the official breakdown in 1971.

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  • Markus Baltzer & Gerhard Kling, 2007. "Predictability of future economic growth and the credibility of monetary regimes in Germany, 1870-2003," Applied Economics Letters, Taylor & Francis Journals, vol. 14(6), pages 401-404.
  • Handle: RePEc:taf:apeclt:v:14:y:2007:i:6:p:401-404
    DOI: 10.1080/13504850500461456
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    References listed on IDEAS

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    1. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
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    4. Hans Joachim Voth, 1998. "Inflationary expectations during Germany's great slump," Economics Working Papers 333, Department of Economics and Business, Universitat Pompeu Fabra.
    5. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
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    7. Robert D. Laurent, 1988. "An interest rate-based indicator of monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 3-14.
    8. Peel, David A. & Ioannidis, Christos, 2003. "Empirical evidence on the relationship between the term structure of interest rates and future real output changes when there are changes in policy regimes," Economics Letters, Elsevier, vol. 78(2), pages 147-152, February.
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    Cited by:

    1. Leo Krippner & Leif Anders Thorsrud, 2009. "Forecasting New Zealand's economic growth using yield curve information," Reserve Bank of New Zealand Discussion Paper Series DP2009/18, Reserve Bank of New Zealand.

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