Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2000,17
Recent investigations of the transmission mechanism of German monetary policy arrive at quite different conclusions regarding its stability during the period of monetary targeting by the Bundesbank. In this study small dynamic models for the monetary sector of the German economy are analyzed in detail to determine the sources for the contrasting results found in the literature. It turns out that instabilities detected in previous work in the 1980s are possibly spurious. Thus, it appears that the monetary transmission mechanism was reasonably stable and, hence, one important precondition for a monetary targeting policy was satisfied.