Threshold effects in the monetary policy reaction function of the Deutsche Bundesbank

Martin Mandler

MPRA Paper from University Library of Munich, Germany

Abstract: We estimate monetary policy reaction functions with threshold effects for the Deutsche Bundesbank using a real-time data set. Estimates based on the deviation of inflation from the Bundesbank's inflation target as threshold variable suggest a switch to a stronger output gap response in the reaction function if past inflation was high. The reaction function in the regime with higher inflation implies an overall less contractionary monetary policy than that for the low inflation regime. A modified model with three regimes shows this result to be related to periods of substantial excess inflation. We explore a threshold reaction function with a moving inflation target that captures a gradual adjustment of an intermediate to a long-term inflation target and find the Bundesbank to follow a more restrictive monetary policy stance if inflation is above the intermediate-term inflation target.

Keywords: Deutsche Bundesbank; monetary policy reaction function; threshold regression; instrumental variables; real-time data (search for similar items in EconPapers)
JEL-codes: C22 E52 E58 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/32430/1/MPRA_paper_32430.pdf original version (application/pdf)

Related works:
Working Paper: Threshold effects in the monetary policy reaction function of the Deutsche Bundesbank (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:32430

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().