Abstract

The monetary policy of the German Bundesbank in the years from 1967 to 1977 embraces in two respects two very different periods. On the one hand, the years up to and including 1971 belong in the still sustained, though expiring, period of high postwar prosperity with relatively strong growth, low unemployment and slowed depreciation of currency. In the ensuing years, the real conditions precedent for economic development deteriorated considerably. For the monetary policy of the Bundesbank there followed a hiatus with the transition to flexible exchange rates in spring 1973. Up to that time, an important object of Bundesbank policy consisted in neutralizing excessive creation of central bank money by the purchase of foreign exchange by way of liquidity-skimming measures. However, convulsive expansions of the quantity of money and inflation of the price level could not be prevented. With the transition to flexible exchange rates, the conditions for monetary policy improved. The creation of central bank money is now again more a consequence of the - more easily influencable - domestic business of the Bundesbank. Nevertheless, dependence on foreign trade is still an important factor: interventions in the European exchange rate union play a part just as much as the compulsion to check excessive exchange rate fluctuations relative to other currencies. The monetary policy of the Bundesbank took advantage of the greater latitude for action gained with the change to floating primarily - and with a fair amount of success - to damp inflationary trends and inflation expectations. Later on, that policy was again oriented more to exerting influence on cyclical trends and exchange rate fluctuations. The advance notice of a defendable expansion of the quantity of money (defined as the quantity of central bank money) is an attempt to objectivize monetary policy, which up to the present has been received favourably by the public, but on which no definitive judgment can be passed as yet.