Monetary Policy and Forecasts for Real GDP Growth : An Empirical Investigation for the Federal Republic of Germany

Using quarterly data for the Federal Republic of Germany, we generate four-quarter-ahead forecasts for real GDP growth. Throughout the seventies and eighties, real M1 is still the best predictor. It clearly outperforms interest rate-based forecasts, and within this group short-run interest rates outperform interest rate spreads. The same holds for the development after 1992. Thus, there are other measures of monetary policy which predict real GDP growth better than the spread. On the other hand, simple forecasts based on M1 or on short-run interest rates outperform those of the leading German research institutes