Interest rates and investment in West Germany
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Causality tests due toGranger ,Pierce/Haugh , and analysis of residuals from Box-Jenkins models are applied to investment, three interest rate series, and output for West Germany from 1960 to 1978. Results are reported for two separate periods which are distinct due to changes in government policies.
We conclude that investment is inelastic with respect to nominal short-term interest rates and the real rate of interest. However, investment does appear influenced by nominal long-term interest rates, even after government policies had moved towards controlling money stock rather than operating directly on interest rates.
KeywordsInterest Rate Real Rate Money Stock German Industry Central Bank Money
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