Paradigm Changes of German Monetary Policy

Abstract

There is actually nothing to add if a proven expert on German monetary policy such as Stephen F. Frowen and his co-author Karakitsos arrive at the conclusion that ‘The German policymakers have been very systematic and very pragmatic in their conduct of monetary policy. Their priorities between inflation and growth have remained time invariant … ‘(Frowen and Karakitsos, 1997, p. 527). The salient feature of German monetary policy is indeed its striking continuity, rather than frequent ‘paradigm changes’.

That applies first and foremost to its stability orientation. In the 50 years of the Deutsche Mark’s existence, Germany has achieved a high degree of price stability. In that respect, the last 50 years have been in distinct contrast to the monetary upheavals of the first half of the twentieth century with their calamitous political and social consequences. A comparison with inflationary developments in other countries during the past 50 years also testifies to how deeply stability awareness is anchored in Germany - something which is undoubtedly due to its specific past experience. The average annual rate of inflation in the United Kingdom over the past five decades - based on a broad index of consumer prices - has been 6.4 per cent, for example.