Monetary Policy and Dividend Growth in Germany
Monetary Policy and Dividend Growth in Germany

Monetary Policy and Dividend Growth in Germany

Long-Run Structural Modelling versus Bounds Testing Approach

Beitrag, Englisch, Universität Hohenheim

Autor: Prof. Dr. Ansgar Belke

Herausgeber / Co-Autor: Thorsten Polleit

Erscheinungsdatum: 2005

Quelle: Diskussionsbeiträge aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 250/2005


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This paper examines the long-run relationship between monetary policy and dividend growth in Germany. For this purpose, we test for cointegration between both variables in the period 1974 to 2003. However, problems related to spurious regression arise from the mixed order of integration of the series used, from mutual causation between the variables and from the lack of a long-run relationship among the variables of the model. We address these problems by applying the bounds testing approach to cointegration in addition to a more standard long-run structural modelling approach. In principle, both procedures are capable of dealing with the controversial issue of the exogeneity of monetary policy vis-à-vis dividend growth. However, the structural modelling approach still leaves a certain degree of uncertainty about the integration properties of the interest rate and the dividend growth. Hence, we feel legitimized to refer to the bounds testing procedure and to conclude that in the longer term short-term rates drive stock returns but not vice versa.

Prof. Dr. Ansgar Belke

DE, Essen

Inhaber des Jean-Monnet Lehrstuhls VWL, insbes. Makroökonomik an der Universität Duisburg-Essen

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