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

Imke Brüggemann

German Economic Review, 2003, vol. 4, issue 3, 307-339

Abstract: 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.

Date: 2003
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German Economic Review is currently edited by Bernhard Felderer, Joseph F. Francois, Ivo Welch, Urs Schweizer and David E. Wildasin

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