Estimation of a German money demand system – a long-run analysis |
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Authors: | Kirstin Hubrich |
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Institution: | Institut f¨ur Statistik und ?konometrie, Humboldt-Universit?t zu Berlin, Spandauer Str.1, D-10178 Berlin, Germany (e-mail: kirstin@wiwi.hu-berlin.de), DE
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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.
First version received: October 1996/final version received: July 1997 |
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Keywords: | : Money demand Fisher effect interest rate spread German monetary policy Johansen procedure |
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