Was the Bundesbank’s credibility undermined during the process of German reunification?

Monetary union in Germany as part of the reunification process required a conversion rate between the Deutschmark and the Mark, the currencies of West and East Germany respectively. Flows (in particular wages and pensions) were converted at a rate of 1:1, whilst there were different conversion rates for stocks, leading to an average conversion rate of 1:1.8.1 During the preparation for monetary union, i.e. from February to May 1990, a serious conflict arose between the West German government and the Bundesbank. This clash centred on two issues: that the West German central bank was in favour of a gradual move to monetary union based on achieving step-by-step economic convergence and, conversely, that the West German government wanted to introduce the Deutschmark as soon as possible into East Germany, considering this step the best means to enhance economic conditions in the run-down communist country.[...]

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Year of publication:	2003-05-01
Authors:	Morys, Matthias
Institutions:	London School of Economics and Political Science
Subject:	Aktie \| Glaubwürdigkeit \| linear credibility predictors \| Wiedervereinigung \| Deutsche Bundesbank \| Währung \| currency

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1. Introduction
1.1 Historical background
1.2 Hypothesis and aim of the working paper
1.3 Existing literature
1.4 Structure of the working paper
2. Qualitative Analysis: Historical events and the cause of conflict
2.1 From the fall of the Berlin Wall until 6th February 1990
2.2. 6th February 1990: The major clash between nationalgovernment and Bundesbank
2.3 Divergent concepts for the appropriate conversion rate
2.4 Further lines of conflict between national government andBundesbank
2.5 The cause of conflict: independence versus credibility
3. Quantitative Analysis: Measuring lost credibility
3.1 The irrelevance of conventional measurements of central bankindependence to the problem in question
3.2 Measuring inflationary expectations
3.3 The conduct of an event-study
4. The costs of lost credibility
5. Conclusion
Appendix 1: Determination of prediction intervals within the framework of the linear single regression
Appendix 2: Identity of equations (1) and (3)
Bibliography

Persistent link: https://www.econbiz.de/10005870598