IDEAS home Printed from https://ideas.repec.org/p/fip/fedgif/414.html
   My bibliography  Save this paper

The usefulness of P* measures for Japan and Germany

Author

Listed:
  • Linda S. Kole
  • Michael P. Leahy

Abstract

This paper develops measures of long-run equilibrium price levels (P*) for Japan and Germany following the approach used for the United States by Hallman, Porter, and Small [1991]. Under this approach, P* is detemined by potential output, equilibrium velocity, and the amount of money in the economy. Constructing P* for these foreign countries is more complicated than in the U.S. case because the velocities of the broad monetary aggregates (M2+CDs in Japan and M3 in Germany) exhibit clear downward trends in contrast to the relatively flat trend of U.S. M2 velocity. We utilize dynamic specifications of money demand to construct measures of equilibrium velocity and P for Japan and Germany. We then assess the explanatory power of deviations of actual prices from P* in predicting the amount of inflationary potential in the Japanese and German economies. In general, we find that the P* approach is useful in the analysis of German inflation, but that it is less promising for Japan than it has been for the United States.

Suggested Citation

  • Linda S. Kole & Michael P. Leahy, 1991. "The usefulness of P* measures for Japan and Germany," International Finance Discussion Papers 414, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:414
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/ifdp/1991/414/default.htm
    Download Restriction: no
    File URL: http://www.federalreserve.gov/pubs/ifdp/1991/414/ifdp414.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. International Monetary Fund, 1990. "Long-Run Money Demand in Large Industrial Countries," IMF Working Papers 1990/053, International Monetary Fund.
    2. Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-858, September.
    3. Kazuo Ueda, 1990. "Financial deregulation and the demand for money in Japan," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 176-205.
    4. International Monetary Fund, 1989. "Wealth. Financial Liberalization, and the Demand for Money in Japan," IMF Working Papers 1989/085, International Monetary Fund.
    5. Jeffrey J. Hallman & Richard D. Porter & David H. Small, 1989. "M2 per unit of potential GNP as an anchor for the price level," Staff Studies 157, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:onb:oenbwp:y::i:20:b:1 is not listed on IDEAS
    2. J.M. Groeneveld & K.G. Koedijk & C.J.M. Kool, 1997. "Money, prices and the transition to EMU," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 50(203), pages 481-504.
    3. Ahmad Tashkini, 2006. "The P-star Model in Iran (1960-2005)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 11(1), pages 115-122, winter.
    4. Robert B. Kahn & Linda S. Kole, 1993. "Monetary transmission channels in major foreign industrial countries," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    5. Bruce Kasman, 1993. "A comparison of monetary policy operating procedures in six industrial countries," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    6. Tödter, Karl-Heinz, 2002. "Monetary indicators and policy rules in the P-star model," Discussion Paper Series 1: Economic Studies 2002,18, Deutsche Bundesbank.
    7. John E. Morton & Paul R. Wood, 1993. "Interest rate operating procedures of foreign central banks," Proceedings, Board of Governors of the Federal Reserve System (U.S.).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chaubal Aditi, 2018. "P-star model for India: a nonlinear approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(5), pages 1-28, December.
    2. Habibullah, Muzafar, 1999. "Using P-Star Model to Linking Money and Prices in A Financial Liberalised Developing Economy: The Case for Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 33, pages 123-140.
    3. Javier Gómez & José Darío Uribe & Hernando Vargas, 2002. "The Implementation Of Inflation Targeting In Colombia," Borradores de Economia 3603, Banco de la Republica.
    4. Joseph Atta-Mensah, 1996. "A Modified P*-Model of Inflation Based on M1," Staff Working Papers 96-15, Bank of Canada.
    5. Michael T. Belongia & Peter N. Ireland, 2015. "Interest Rates and Money in the Measurement of Monetary Policy," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(2), pages 255-269, April.
    6. Johannes Groeneveld, 1998. "From the ERM with Love: Monetary Spillover Effects to Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 25(3), pages 331-345, January.
    7. Hans Groeneveld, 1995. "Monetary Spill-over Effects in the ERM: The Case of Austria, a Former Shadow Member," Working Papers 20, Oesterreichische Nationalbank (Austrian Central Bank).
    8. Tödter, Karl-Heinz, 2002. "Monetary indicators and policy rules in the P-star model," Discussion Paper Series 1: Economic Studies 2002,18, Deutsche Bundesbank.
    9. Ramya Hewarathna, 2000. "The P-Star Model in Australia and New Zealand," Working Papers 2000.07, School of Economics, La Trobe University.
    10. J.M. Groeneveld & K.G. Koedijk & C.J.M. Kool, 1997. "Money, prices and the transition to EMU," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 50(203), pages 481-504.
    11. repec:onb:oenbwp:y::i:20:b:1 is not listed on IDEAS
    12. Imad Moosa & Basil Al-Nakeeb, 2020. "An augmented P-Star model of US inflation," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 555-566, December.
    13. Sekine, Toshitaka, 1998. "Financial Liberalization, the Wealth Effect, and the Demand for Broad Money in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 16(1), pages 35-55, May.
    14. Abdul Qayyum & Faiz Bilquees, 2005. "P-Star Model: A Leading Indicator of Inflation for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(2), pages 117-129.
    15. John A. Tatom, 1992. "The P-star model and Austrian prices," Working Papers 1992-001, Federal Reserve Bank of St. Louis.
    16. Wieland, Volker, 2000. "Monetary policy, parameter uncertainty and optimal learning," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 199-228, August.
    17. Luis Fernando Melo Velandia & Martha Alicia Misas Arango, 2004. "Modelos Estructurales de Inflación en Colombia: Estimación a través de Mínimos Cuadrados Flexibles," Borradores de Economia 3244, Banco de la Republica.
    18. Todd E. Clark & Michael W. McCracken, 2010. "Averaging forecasts from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 5-29, January.
    19. Jacek Kotlowski, 2005. "Money and prices in the Polish economy. Seasonal cointegration approach," Working Papers 20, Department of Applied Econometrics, Warsaw School of Economics.
    20. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
    21. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:414. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.