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. 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.
    2. 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.).
    3. 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.
    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. 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.
    2. 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.).
    3. Tödter, Karl-Heinz, 2002. "Monetary indicators and policy rules in the P-star model," Discussion Paper Series 1: Economic Studies 2002,18, Deutsche Bundesbank, Research Centre.
    4. 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.).
    5. repec:onb:oenbwp:y::i:20:b:1 is not listed on IDEAS
    6. Ahmad Tashkini, 2006. "The P-star Model in Iran (1960-2005)," Iranian Economic Review, Economics faculty of Tehran university, vol. 11(1), pages 115-122, winter.
    7. 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.).

    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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.