Money and Inflation: The Role of Persistent Velocity Movements
Makram El-Shagi, Sebastian Giesen
Abstract
While the long run relation between money and inflation is well established, empirical evidence on the adjustment to the long run equilibrium is very heterogeneous. In the present paper we use a multivariate state space framework, that substantially expands the traditional vector error correction approach, to analyze the short run impact of money on prices. We contribute to the literature in three ways: First, we distinguish changes in velocity of money that are due to institutional developments and thus do not induce inflationary pressure, and changes that reflect transitory movements in money demand. This is achieved with a newly developed multivariate unobserved components decomposition. Second, we analyze whether the high volatility of the transmission from monetary pressure to inflation follows some structure, i.e., if the parameter regime can assumed to be constant. Finally, we use our model to illustrate the consequences of the monetary policy of the Fed that has been employed to mitigate the impact of the financial crisis, simulating different exit strategy scenarios.
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Business Cycle Volatility in Germany
Claudia M. Buch, J. Doepke, C. Pierdzioch
German Economic Review,
2004
Abstract
Stylized facts suggest that output volatility in OECD countries has declined in recent years. The causes and the nature of this decline have so far been analyzed mainly for the United States. In this paper, we analyze whether structural changes in output volatility in Germany can be detected. We report evidence that output volatility has declined in Germany. It is difficult to answer the question whether this decline in output volatility reflects good economic and monetary policy or merely ‘good luck’.
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Structural Vector Autoregressive Models and Monetary Policy Analysis
Oliver Holtemöller
SFB 373 Discussion Paper 7/2002,
2002
Abstract
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Germany s dependence on the economic situation in the U.S. is less crucial than generally assumed
Klaus Weyerstraß
Wirtschaft im Wandel,
No. 6,
2002
Abstract
In the context of the recent cyclical downturn in Germany it has often been argued that Germany depends more than other European countries on international economic developments. In this article it is investigated whether empirical support can be found for this proposition. Moreover, it is explored whether this relation has changed over time. For this purpose, vector autoregressive (VAR) models are applied to the output gaps of different economies.
It is shown that in the seventies and eighties, the transmission of business cycle shocks was more pronounced to Germany than to the other EU countries. Since the middle of the nineties, no such differences can be detected. Furthermore, since the middle of the nineties, the effects of shocks from abroad on the German business cycle have been significantly more short-lived than before.
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