Cite JOURNAL ARTICLE
Methoden und Probleme einer Geldmengensteuerung
Credit and Capital Markets – Kredit und Kapital, Vol. 9 (1976), Iss. 4 : pp. 455–480
Methods and Problems of Controlling the Quantity of Money - Empirical Simulation Tests for the Federal Republic of Germany
The influence of the quantity of money on macroeconomic magnitudes is of relevance for the central bank with regard to monetary policy only if it can control the quantity of money. Control of the monetary base alone is not enough; on the contrary, the money quantity multiplier must either be constant or accurately forecastable. Since the zı multiplier for the Federal Republic of Germany was by no means constant over time, this study attempts, among other things, to forecast the trend of the multiplier. The approach adopted in the study is the multiplier forecasting method proposed by Burger, Kalish and Babb. Different explanatory factors are tested to determine their influence. Since, moreover, the Bundesbank is unable to exercise precise control of the monetary base, alternative, but more effectively controllable magnitudes (liberated reserves LR and so-called controllable monetary base BC) are also taken into account. For monthly values, the analysıs shows that forecasts of the multipliers give values in respect of LR and BC which are useless for controlling M. There remains only control with the help of the monetary base. The forecast results relating to the multiplier concerned admit of control of the quantity of money by the Bundesbank with some limitations. It proves that interest values make no significant contribution to the forecast, and that past multiplier values give the best results. Here, as in the case of monetary base control, the most important disturbing factor is the external factor. The upshot is that to a great extent precise control of the quantity of money would have been possible from 1956 to 1967. Although from 1968 onwards accuracy of control diminished, an appropriate monetary policy would nevertheless not have been impossible in this period (up to 1973). A switch to quarterly values considerably improves the possibility of controlling the quantity of money, but in this case, too, the adverse influence of the external component is noticeable. The adoption of largely flexible exchange rates and possible intensified use of quantity-controlling instruments of monetary policy by the Bundesbank can be expected to bring more exact control of the quantity of money.