How the Bundesbank Really Conducted Monetary Policy: An Analysis Based on Real-Time Data

Opting Out of the Great Inflation: German Monetary Policy after the Breakdown of Bretton Woods

“…We report results for annual changes in the output gap as well as for 43. In Gerberding, Seitz, and Worms (2007), we show that for the sample period 1979:Q1 to 1998:Q4, this result is robust to the inclusion of an AR(1) model for the error term. its quarterly changes.…”

“…First, policymakers apparently overestimated the extent to which the currency appreciation would dampen real activity and infl ation. The second misjudgment concerned the depth of the 1975 recession, which in hindsight, turned out to have been greatly overestimated (see Gerberding, Seitz, and Worms 2004). 20 Nevertheless, the Bundesbank was able to slow down infl ation from the high levels before to 2.7 percent in 1978.…”

“…Two potential candidates are the breakdown of the Bretton Woods system in March 1973 and / or the official start of the monetary targeting regime in 1975:Q1. 37 However, most studies on the Bundesbank's reaction function, including Clarida, Galí, and Gertler (1998) and Gerberding, Seitz, andWorms (2005, 2007), choose an even later date, namely 1979:Q1, as the starting point of their analysis. The reason for doing so can best be understood by comparing the behavior of real interest rates and infl ation during the period in question.…”

“…We fi rst report our fi ndings for Germany, which are summarized in table 6.4. The estimates are based on the real-time data set described in Gerberding, Seitz, and Worms (2004). In order to compare the conduct of monetary policy in Germany before and after the collapse of Bretton Woods, the data set was extended backwards to 1965 so that it now covers the sample period 1965 to 1998.…”

“…The issue has already been repeatedly considered in the literature (e.g. Clarida, Galí, and Gertler 1998;Gerberding, Seitz, and Worms 2005).…”