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The Role of the Ifo Business Climate Indicator and Asset Prices in German Monetary Policy

In: Ifo Survey Data in Business Cycle and Monetary Policy Analysis

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  • Elmer Sterken

    (University of Groningen
    CESifo)

Abstract

We analyze the role of forward-looking indicators, like the IFO business climate indicator and asset prices, in German monetary transmission. We show that the use of both the IFO indicator and asset prices improves the performance and interpretation of a Vector AutoRegression (VAR) model of German monetary transmission. First, we show that the Bundesbank responded more intensively to changes in the IFO indicator than to changes in GDP. Secondly, we address the role of housing and equity prices. We demonstrate that especially housing prices help to give a more accurate description of the recent history of German monetary policy.
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Suggested Citation

  • Elmer Sterken, 2005. "The Role of the Ifo Business Climate Indicator and Asset Prices in German Monetary Policy," Contributions to Economics, in: Jan-Egbert Sturm & Timo Wollmershäuser (ed.), Ifo Survey Data in Business Cycle and Monetary Policy Analysis, pages 173-201, Springer.
    • Handle: RePEc:spr:conchp:978-3-7908-1605-1_8
    DOI: 10.1007/3-7908-1605-1_8
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