Predictability of future economic growth and the credibility of monetary regimes in Germany, 1870–2003

Our study tries to quantify the predictability of economic growth and links it to the capability of regimes to fight against inflation. A regime with a high persistence of inflation and, hence, low credibility exhibits a high level of predictability of economic growth using the yield curve as indicator. Based on structural VAR models, we evaluate the credibility of monetary regimes in Germany from 1870 to 2003. The period of the Classical Gold Standard exhibited the highest credibility compared to the interwar period, the Bretton Woods and free float era. The reliability of the Bretton Woods agreement deteriorated years before the official breakdown in 1971.