Monetary Transmission, Asset Prices, and The Business Cycle Indicator in Germany

We analyze monetary transmission in Germany and focus on two elements. First, we address the role of asset prices in monetary transmission, especially the role of housing and equity. We show that including assets helps in understanding the monetary transmission process. Housing is found to be more important in Germany than equity. Next we emphasize the role of business cycle indicators in VAR-models. Knowing that asset prices signal future economic development it seems to be consistent to include contemporaneous or even leading indicators as GDP-measures. Inclusion of the IFO-Climate indicator leads to more rapid impact of interest rates and asset prices on economic activity and inflation.