ABSTRACT
Many studies have shown that economic policies may have significant impacts on business cycles and they may to some extend be „cycle makers“. Hence if it were possible to construct appropriate policy indicators these could be used as leading indicators so that economic forecasting could be improved. Such analysis may also affect policy recommendations. For example economic policies are often blamed for being procyclical i.e. overly expansionary during economic booms and too restrictive during economic downturns. Such policies would increase inflationary pressures during the upswing and unemployment in the downturn. As recessions would be deeper than with more neutral policies, unemployment would not only rise more in the short-term - given problems of hysteresis - employment and growth may also be lower over the long-term.
In the following an attempt is made to construct indicators for monetary conditions and fiscal policies for Germany and to examine the policy mix during the past cycles. It is shown that economic policies had significant effects on economic activity. Furthermore it is a common feature that expansionary fiscal policies are accompanied by restrictive monetary conditions.
