Document Type
Thesis - University Access Only
Award Date
2004
Degree Name
Master of Science (MS)
Department / School
Economics
First Advisor
Joseph Santos
Abstract
This research determines the extent to which Germany's adoption of the euro was a logical next step in the evolution of central banking in general since WWII. I evaluate the significance of the political economics of monetary integration from the perspective of the Bundesbank and the West German government. Moreover, I model a modified Taylor Rule to assess the evolution of the Bundesbank's monetary policy between 1960 and 1998. Finally, I demonstrate that the adoption of the euro was the logical next step in the evolution of the Bundesbank's monetary policy.
Germany had a central role in the process of monetary integration in Europe, and the German domestic policy making was the primary driving force behind the EMU from 1960 forward. Although the Chancellory and the Foreign Ministry were a strong proponent of the monetary integration in Europe, they were restrained in pursuit to move forward with it quickly. The Bundesbank and the Finance Ministry preferred a gradual approach to monetary integration because they wanted to assure that member nations adopted price stability as their primary objective. The German public supported the Bundesbank' s view and the German government allowed the Bundesbank to shape the institutional plan of the EMU.
The modified Taylor Rule serves as a reliable benchmark of the Bundesbank's monetary policy. I estimate multiple reaction functions to assess the evolution of the Bundesbank's monetary policy. The results demonstrate that the monetary policy making in Germany during the Bretton Woods (BW) era differed from the post-Bretton Woods period, when the DM floated against the U.S. Dollar. For instance, the Bundesbank did not make great changes to its monetary instrument during BW - the call money rate - because the inflation rate remained stable relative to the post-BW period. The results suggest that the Bundesbank is not an inflation-targeting institution instead Germany's central bank targeted the real rate. During the BW period, the estimated real rate target for the Bundesbank equals 3.4 percent, whereas the estimate for the post-BW period is 5.5 percent.
Finally, I test for similarities in the de facto monetary policy objectives of the Bundesbank and the ECB. Based on the modified Taylor Rule, both institutions are not inflation-targeting but target the real rate. The estimates for the real rate target equal 5.5 and 6.0 percent for the Bundesbank and the ECB, respectively. The Bundesbank's and the ECB's monetary policy are similar. Both institutions are not inflation-targeting but instead real rate targeting. The outcome implies that Germany’s adoption of the euro was the logical next step in the evolution of central banking and that Germany's transition to full monetary union best-suits its monetary policy needs by the end of 1990s.
Library of Congress Subject Headings
Monetary policy -- Germany.
Deutsche Bundesbank.
Euro -- Germany.
Banks and banking, Central.
Europe -- Economic integration.
Mark, German.
Publisher
South Dakota State University
Recommended Citation
Jorgensen, Zülbiye Y., "The End of Deutsche Mark: The Bundesbank, The Euro, and the Evolution of Central Banking" (2004). Electronic Theses and Dissertations. 1097.
https://openprairie.sdstate.edu/etd2/1097
Rights Statement
