Money in a New-Keynesian model estimated with German data

In this paper we estimate a simple New-Keynesian DSGE model with German data for the sample period 1970:q1 to 1998:q4. Contrary to a number of recent similar papers estimated with US and euro-area data, we find that real money balances contribute significantly to the determination of inflation and of the dynamics of output. We estimate our model using a maximum likelihood technique under a full set of structural shocks. We do not rule out indeterminate solutions a priori. Under multiple stable paths we close the model using the minimum-state-variable solution.