Estimation of a German money demand system - a long-run analysis

Kirstin Hubrich ()

Empirical Economics, 1999, vol. 24, issue 1, 77-99

Abstract: This study presents a multivariate analysis of the stability of long-run relationships between variables that influence the conduct and transmission process of the German monetary policy. The initial VAR comprises the variables real money M3, real GNP, the inflation rate, a long-term and a weighted short-term interest rate. A multivariate approach has been chosen, as this allows for more than one cointegration relationship and to test restrictions on the cointegration space. In contrast to most other studies on German monetary policy, three stable and economically plausible cointegration relationships are obtained simultaneously within the framework of the Johansen procedure: a money demand relationship, a long-run Fisher effect and a long-run relationship between the short- and the long-term interest rate. It is apparent that the structural break of German reunification can be modelled incorporating dummy variables in the model.

Keywords: Money; demand; ·; Fisher; effect; ·; interest; rate; spread; ·; German; monetary; policy; ·; Johansen; procedure (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 E41 E43 (search for similar items in EconPapers)
Date: 1999-02-11
Note: received: October 1996/final version received: July 1997
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Citations: View citations in EconPapers (18)

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