IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2005-086.html

Following Germany’s Lead: Using International Monetary Linkages to Identify the Effect of Monetary Policy on the Economy

Author

Listed:
  • International Monetary Fund

Abstract

Forward-looking behavior on the part of the monetary authority leads least squares estimates to understate the true growth consequences of monetary policy interventions. We present instrumental variables estimates of the impact of interest rates on real output growth for several European countries, using German interest rates as the instrument. We show that the difference between least squares and instrumental variables estimates provides bounds for the degree of endogeneity in monetary policy. The results confirm a considerable downward bias of estimates that do not account for potential forward-looking monetary policy decisions. The bias is higher for countries whose monetary policy was more independent of Germany.

Suggested Citation

  • International Monetary Fund, 2005. "Following Germany’s Lead: Using International Monetary Linkages to Identify the Effect of Monetary Policy on the Economy," IMF Working Papers 2005/086, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/086
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18182
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2004. "Monetary Sovereignty, Exchange Rates, and Capital Controls: The Trilemma in the Interwar Period," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 75-108, June.
    2. Olivier J. Blanchard & Mark W. Watson, 1986. "Are Business Cycles All Alike?," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 123-180, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arend, Mario, 2005. "Efectos de una nueva medida de shock monetario bajo el esquema de metas de inflación en Chile [Effects of a New Measure of Monetary Shock Under Inflation Targeting in Chile]," MPRA Paper 27156, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. di Giovanni, Julian & McCrary, Justin & Wachter, Till von, 2005. "Following Germany's Lead: Using International Monetary Linkages to Identify the Effect of Monetary Policy on the Economy," IZA Discussion Papers 1495, IZA Network @ LISER.
    2. repec:hum:wpaper:sfb649dp2005-039 is not listed on IDEAS
    3. Blazsek, Szabolcs & Escribano, Álvaro & Licht, Adrian, 2018. "Seasonal quasi-vector autoregressive models for macroeconomic data," UC3M Working papers. Economics 26316, Universidad Carlos III de Madrid. Departamento de Economía.
    4. Christopher A. Sims, 1993. "A Nine-Variable Probabilistic Macroeconomic Forecasting Model," NBER Chapters, in: Business Cycles, Indicators, and Forecasting, pages 179-212, National Bureau of Economic Research, Inc.
    5. Fu, Qi & So, Jacky Yuk-Chow & Li, Xiaotong, 2024. "Stable paretian distribution, return generating processes and habit formation—The implication for equity premium puzzle," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    6. Mio, Hitoshi, 2002. "Identifying Aggregate Demand and Aggregate Supply Components of Inflation Rate: A Structural Vector Autoregression Analysis for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(1), pages 33-56, January.
    7. Fidora, Michael & Chudik, Alexander, 2011. "Using the global dimension to identify shocks with sign restrictions," Working Paper Series 1318, European Central Bank.
    8. Tito Belchior Silva Moreira & Benjamin Miranda Tabak & Mario Jorge Mendonça & Adolfo Sachsida, 2016. "An Evaluation of the Non-Neutrality of Money," PLOS ONE, Public Library of Science, vol. 11(3), pages 1-20, March.
    9. Greg Hannsgen, 2011. "Infinite-variance, Alpha-stable Shocks in Monetary SVAR: Final Working Paper Version," Economics Working Paper Archive wp_682, Levy Economics Institute.
    10. Oscar Jorda & Alan Taylor & Sanjay Singh, 2019. "The Long-Run Effects of Monetary Policy," 2019 Meeting Papers 1307, Society for Economic Dynamics.
    11. Pham The Anh, 2007. "Nominal Rigidities and The Real Effects of Monetary Policy in a Structural VAR Model," Working Papers 06, Development and Policies Research Center (DEPOCEN), Vietnam.
    12. Catherine Bruneau & Olivier De Bandt, 1999. "La modélisation Var "structurel" : application à la politique monétaire en France," Économie et Prévision, Programme National Persée, vol. 137(1), pages 67-94.
    13. Etsuro Shioji, 1997. "Spanish monetary policy: A structural VAR analysis," Economics Working Papers 215, Department of Economics and Business, Universitat Pompeu Fabra.
    14. James S Laurenceson & Callan Windsor, 2011. "How Effective is China’s Monetary Policy? An assessment of the link between the growth of monetary aggregates and inflation during the 2000s," Discussion Papers Series 435, School of Economics, University of Queensland, Australia.
    15. Wilbur John Coleman & Christian Gilles & Pamela Labadie, 1993. "Discount window borrowing and liquidity," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    16. Kenneth D. West, 1993. "An Aggregate Demand–Aggregate Supply Analysis of Japanese Monetary Policy, 1973–1990," NBER Chapters, in: Japanese Monetary Policy, pages 160-188, National Bureau of Economic Research, Inc.
    17. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    18. Peter Englund & Anders Vredin, 1990. "The current account, supply shocks and accommodative fiscal policy : interpretations of Swedish post-war data," Finnish Economic Papers, Finnish Economic Association, vol. 3(2), pages 89-107, Autumn.
    19. Jean-Sébastien Lenfant, 2021. "Eugen (Evgeny Evgenievich) Slutsky (1880-1948)," Working Papers hal-03628273, HAL.
    20. Firew B Woldeyes, 2013. "Long-Run Effects of Resource Rents in Developing Countries: The role of public investment management," OxCarre Working Papers 105, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    21. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2012. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 609-681.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2005/086. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.