The paper tries to answer the question of what is the best indicator for German monetary policy. Several VAR studies about Germany use the call rate or other short term market interest rates as a measure of German monetary policy relying on the analogy to the US federal funds rate. Although Bundesbank operations have become increasingly similar to those of the Fed over time, historically there are some differences. It might therefore be risky to use the call rate as indicator of monetary policy. Because the Bundesbank lacked the tools to target open-market interest rate precisely, it seems possible that short-term innovations in market rates might have reflected non-policy factors in the economy, such as shifts in the demand for reserves, as well as policy innovations. If shocks to the call rate reflect non-policy influences, then measured impulse responses to call rate innovations are no longer ''clean'' estimates of the effects of monetary policy shocks on the economy.

[13] p. : graphs, tables

Includes bibliographical references.