Did the Bundesbank Target Monetary Expansion or Inflation? Evidence from Monetary Base Growth

11 Pages Posted: 8 Feb 2012

See all articles by Roland Vaubel

Roland Vaubel

University of Mannheim - Department of Economics

Galina Boeva

affiliation not provided to SSRN

Date Written: February 1, 2012

Abstract

Several empirical studies have suggested that the Bundesbank has pursued inflation targets rather than monetary targets. These studies have been criticized because they do not adequately measure the deviation from target and because they use some short term interest rate as a measure of the Bundesbank’s policy actions instead of the comprehensive measure, the monetary base adjusted for changes in reserve requirements. We find that, in the period from 1979 III to 1998 IV, changes in adjusted monetary base growth reacted negatively and significantly to deviations from target monetary expansion as measured relative to the nearest margin of the target band if, and only if, no control variables are added. With our control variables, the significance of this coefficient drops to 10 percent. By contrast, deviations of the inflation rate from the inflation objective used to derive the money supply target never has any significant effect on changes in adjusted monetary base growth. This result holds regardless of whether the lagged or the currently expected inflation rate is employed. The results are consistent with money supply targeting (if anything) but not with inflation targeting.

Keywords: Deutsche Bundesbank, monetary policy, money supply targets, inflation targets

JEL Classification: E52, E58, E42

Suggested Citation

Vaubel, Roland and Boeva, Galina, Did the Bundesbank Target Monetary Expansion or Inflation? Evidence from Monetary Base Growth (February 1, 2012). Available at SSRN: https://ssrn.com/abstract=2001416 or http://dx.doi.org/10.2139/ssrn.2001416

Roland Vaubel (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Galina Boeva

affiliation not provided to SSRN

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
77
Abstract Views
526
rank
444,025
PlumX Metrics