THE INFLUENCE OF MONETARY POLICY ON GERMANY'S ECONOMIC DEVELOPMENT
Abstract
At a time when the emergence of a financial crisis has its own cycle, it is very important to understand the impact of monetary policy instruments and them effectively. The paper investigates the impact of traditional and non-traditional ECB instruments on the economic development of Germany under crisis conditions. Such traditional instruments as open market operations, minimum reserve system and marginal lending rate were considered in detail. Outright Monetary Transactions (OMT), Targeted long-term refinancing operations (TLTROs), Asset purchase programs (APP) and Pandemic emergency purchase program (PEPP) were considered as non-traditional instruments. A regression model was constructed in SPSS to investigate the impact of monetary policy on Germany's economic development. The regression model investigated the effect of ECB rate, exchange rate, foreign exchange reserves and ECB balance sheet size (independent variables) on German GDP. The results show that the size of the ECB balance sheet and the exchange rate have the largest impact on German GDP. GDP volatility has a direct correlation with the exchange rate, because the strength of the national currency is one of the factors in keeping inflation low, so that the economy has the opportunity for stable development. A direct correlation was also detected with the size of the ECB balance sheet, which had a positive value over the entire period, thanks to which the stability of the exchange rate is maintained in crisis situations, directly affecting the country's GDP, and non-standard monetary policy instruments were used to maintain its positive value. The least influence is exerted by foreign exchange reserves. As a result, the effectiveness of unconventional monetary policy was confirmed in overcoming the crisis and promoting the economic development of Germany.
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