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

Brüggemann Imke
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Brüggemann Imke: Freie Universität Berlin,Berlin, Germany

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

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 moneydemand 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.

Keywords: Monetary policy; cointegration; structural VAR analysis (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1111/1468-0475.00083

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