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

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  • Imke Brüggemann

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 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.

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