European Economy. Economic Papers. Germany's growth performance in the 1990's

Figure 2.2:
German Term Structure 1990-1998
0
2
4
6
8
10
12
Jul-90
Jul-92
Jul-94
Jul-96
Jul-98
Money market rates
/ FIBOR one month /
monthly average
Government bond
yields (9 to 10 years)
/ monthly average
Figure 2.1:
Policy Interest Rates in Germany 1989-1998 (in %)
2
3
4
5
6
7
8
9
10
Jan-89
Jul-90
Jan-92
Jul-93
Jan-95
Jul-96
Jan-98
Discount rate (%)
Repo rate (%)
Lombard rate (%)

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Figure 2.4:
Policy Interest Rates
(January 1999-July 2001)
1.0
2.0
3.0
4.0
5.0
6.0
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Fixed rate tender rate
Deposit facility
Marginal lending facility
Minimum bid rate
Marginal rate
The final two years of
monetary policy
conducted by the
Bundesbank were
characterised by more or
less stable interest rates.
By the summer of 1998
expectations of an
interest rate increase in
the Euro-area over the
next year disappeared
and markets anticipated
interest rates would
converge downward to
the level prevailing in the
ERM core countries like
Germany. Moreover,
bond yields declined to record low levels due to the low-inflation environment and to the "flight
to quality" following the crises in Southeast Asia and Russia in 1997 and 1998 respectively.
With the ECB’s policy set according to the needs of the Euro-area as a whole, the monetary
component in the
national policy mix
cannot be expected to
fit well the
circumstances of all
economies at all times.
In fact, while the
initial repo rate of 3%
in the Euro-area
implied a decline as
compared to the
average of policy rates
in the Euro-area in
mid-1998, for
Germany there was no
change. In early 1999
monetary conditions
were eased by the
depreciation of the
euro. With inflation
falling and weak
growth prospects the ECB lowered the repo rate in early April 1999 to 2.5 percent.
Throughout the year 2000 the ECB continued raising the official short-term interest rates.
Between November 1999 and October 2000 interest rates were increased by 1¾ percentage
points in six steps, raising the minimum bid rate of the ECB’s main refinancing operations up to
4.75%. This tightening, however, did not mean a turn to restrictive monetary policy as it mainly
responded to higher risks to price stability (economic upswing, oil price increases, decline in the
USD-EUR exchange rate).