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Money and Inflation in Germany: A Cointegration Analysis

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  • Hansen, Gerd
  • Kim, Jeong-Ryeol

Abstract

This paper analyses the relation between money and inflation in Germany in a cost-push/demand-pull model of an open small economy by means of cointegration methods. The full-information-maximum-likelihood method of Johansen as well as structural methods are applied to data subsets and the full data set. The focus of the paper is on tests for overidentifying restrictions and for weak and strong exogeneity within these data sets. The results of the paper is that the money stock, the price level and gross national product are endogenous, whereas the interest rate and the real import price are both weakly and strongly exogenous. By means of the price cointegration relation, we illustrate how monetary targeting should react to imported inflation.

Suggested Citation

  • Hansen, Gerd & Kim, Jeong-Ryeol, 1996. "Money and Inflation in Germany: A Cointegration Analysis," Empirical Economics, Springer, vol. 21(4), pages 601-616.
    • Handle: RePEc:spr:empeco:v:21:y:1996:i:4:p:601-16
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    Citations

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    Cited by:

    1. Carstensen Kai & Hansen Gerd, 2004. "Inflationäre Schocks in Deutschland: Eine Common Trends Analyse / Inflationary Shocks in Germany: A Common Trends Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 224(3), pages 271-291, June.
    2. Lütkepohl, Helmut & Wolters, Jürgen, 2003. "Transmission Of German Monetary Policy In The Pre-Euro Period," Macroeconomic Dynamics, Cambridge University Press, vol. 7(5), pages 711-733, November.
    3. Md. Nezum Uddin & Mohammed Jashim Uddin & Monir Ahmmed, 2019. "Money and Inflation Nexus in Bangladesh," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(6), pages 702-711, June.
    4. Jan Gottschalk & Susanne Bröck, 2000. "Inflationsprognosen für den Euro-Raum: wie gut sind P*-Modelle?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 69(1), pages 69-89.
    5. Lütkepohl, Helmut & Wolters, Jürgen, 1997. "A money demand system for M3 in the unified Germany," SFB 373 Discussion Papers 1997,92, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.

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