Monitory policy in Germany Bundsbank and great inflation

Choice of a Monetary Aggregate.
What determines the monetary aggregate that the Bundesbank targets? The desired aggregate must satisfy the following, the Bundesbank officially acknowledges that the need for a gradualist approach to reducing inflation influenced its targeting decisions. It states that in sitting the targets, “it took account of the fact that price increases which have already entered the decision of economic agents cannot be eliminated immediately, but only by degrees.” (Deutsche Bundesbank, 1987, p.97.) two conventional criteria. First, it should be reasonably controllable. Second, it should obey a relatively predictable relationship with nominal GDP. These criteria quickly eliminate narrow money aggregates like M1. Substitution between demand deposits and near money substitutes (e.g. time and saving deposits) make this aggregate difficult to regulate. It also induces large fluctuations in M1 that are unrelated to the course of economic activity.
The Bundesbank originally settled on a construct it termed Central Bank Money (CBM). The idea underlying the construct was to develop an aggregate that was a weighted average of all existing monetary instruments, where the weights reflect the relative “moneyness” of each instrument. The elements of CBM are, roughly speaking the sum of currency held outside the banking system and the components of the broad aggregate M3 (which corresponds to M2 for the U.S.) weighted by the respective reserve requirement that existed in 1974. Thus, CBM is roughly the monetary base minus excess reserves. It differs by not including reserves against foreign deposits and by using the 1974 reserve requirements as opposed to the current ones. The rationale for using reserve requirements to weight aggregates was that reserve requirements reasonably reflected the relative liquidity of each bank deposit liability.
In 1988 the Bundesbank switched to targeting the broader money aggregate M3. Strong currency growth in 1987 (due) possible to low interest rates) led to a rapid expansion of CMB. The Bundesbank felt that the broader aggregate was less susceptible than CMB to gyrations stemming from currency substitution (Trehan, 1989). The decision to change the target aggregate of a number of pieces of evidence that the Bundesbank does not conduct policy on automatic pilot, New market development can influence policy. A number of studies have demonstrated that the relation between M3 and nominal GDP has been fairly stable over time (e.g., Trehan, 1989). Some papers, further, have argued that the early stages of reunification have disrupted this relationship (e.g., von Hagen (1993), Kole and Meade, (1994). Very recently, however, there has been considerable financial innovation, patterned after what was occurred in the U.S. over the last five to ten years. There is some possibility that this development may introduce the same kind of instability in M3 that the U.S has experienced with its M2 aggregate. If this does occur, we should be surprised to see a new target aggregate emerge.