An Evaluation of the Performance of P-star as an Indicator of Monetary Conditions in the Perspective of EMU: The Case of France

  • Christian Bordes
  • Eric Girardin
  • Velayoudom Marimoutou


The distinction between instruments, intermediate objectives, indicators and final objectives of monetary policy is widely used in academic works as well as by monetary authorities. Among these different concepts, the notion of monetary indicator is the most difficult to handle since it refers in practice to two different concepts (see Dewald, 1967; Davis, 1990). The first one means that the indicator is a scale which is used to measure the orientation of the policy implemented by the authorities (Brunner and Meltzer, 1967; 1969). The second one implies that the indicator provides information on the expansionary or restrictive character of the monetary effects, taken broadly. In order to avoid any confusion, it is better to refer to the first one strictly speaking as a monetary policy indicator and to the second one as an indicator of monetary conditions.


Monetary Policy Price Level Money Supply Cointegration Test European Monetary Union 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. ALLEN, C. and HALL, S. G. (1990) ‘Money as a Potential Anchor for the Price Level: A Critique of the P* Approach’. London Business School.Google Scholar
  2. BANK OF JAPAN (1990) ‘A Study of Potential Pressure on Prices: Application of P* to the Japanese Economy’, Research and Statistics Department. Special Paper no. 186 (Feb).Google Scholar
  3. BARRO, R. (1978) ‘Unanticipated Money, Output and the Price Level in the United States’, Journal of Political Economy (Aug.) 549–80.Google Scholar
  4. BORDES, C. and STRAUSS-KHAN, M. O. (1989) ‘Cointégration et demande de monnaie en France’, Cahiers Economiques et Monétaires, Banque de France, 34, 161–97.Google Scholar
  5. BRUNNER, K. and MELTZER, A. H. (1967) ‘The Meaning of Monetary Indicators’, in G. Horwich (ed.), Monetary Process and Policy: A Symposium (Homewood, Ill.: Richard D. Irwin) pp. 196–203.Google Scholar
  6. BRUNNER, K. and MELTZER, A. H. (eds) (1969) ‘The Nature of the Policy Problem’, in Targets and Indicators of Monetary Policy (San Francisco: Chandler Publishing Company) 16–.Google Scholar
  7. BUNDESBANK (1992) ‘The Correlation between Monetary Growth and Price Movements in the Federal Republic of Germany’, Monthly Report of the Deutsche Bundesbank, 44, (1), 20–28.Google Scholar
  8. CHRISTIANO, L. J. (1989) ‘P* is not the Inflation Forecaster’s Holy Grail’, Federal Reserve Bank of Minneapolis, Quarterly Review, (Fall) 3–18.Google Scholar
  9. CROUSHORE, D. (1991) ‘The Short-Run Costs of Disinflation’, Federal Reserve Bank of Philadelphia, Working Paper, Economic Research Department (Mar).Google Scholar
  10. DAVIS, R. G. (1990) ‘Introduction’, in Intermediate Targets and Indicators for Monetary Policy. A Critical Survey, Federal Reserve Bank of New York.Google Scholar
  11. DEWALD, W. G. (1967) ‘Indicators of Monetary Policy’, Economic Papers, Economic Society of Australia and New Zealand, New South Wales and Victorian Branches, no. 25 (Aug.) 16–43.Google Scholar
  12. DICKEY, D. A. and FULLER, W. A. (1979) ‘Distribution of the Estimators for Autoregressive Series with a Unit Root’, Journal of the American Statistical Association, 74, 427–31.Google Scholar
  13. DICKEY, D. A. and FULLER, W. A. (1981) ‘Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root’, Econometrica, 49, 1057–72.CrossRefGoogle Scholar
  14. ENGLE, R. F. and GRANGER, C. W. (1987) ‘Cointegration and Error Correction: representation, estimation and testing’, Econometrica, 55, 251–76.CrossRefGoogle Scholar
  15. ENGLE, R. F. and YOO, B. S. (1987) ‘Forecasting and Testing in Cointegrated Systems’, Journal of Econometrics, 35, 143–59.CrossRefGoogle Scholar
  16. ENGLE, R. F., HENDRY, D. F. and RICHARD, J. F. (1983) ‘Exogeneity’, Econometrica, 51, 277–304.CrossRefGoogle Scholar
  17. FRIEDMAN, B. M. (1984) ‘The Value of Intermediate Targets in Implementing Monetary Policy’, in Price Stability and Public Policy, Federal Reserve Bank of Kansas City, pp. 169–91.Google Scholar
  18. GONZALO, J. (1989) ‘Comparison of Five Alternative Methods of Estimating Long-run Equilibrium Relationships’, University of California, San Diego, Discussion Paper, 89–55 (Dec).Google Scholar
  19. HALL, S. and FUNKE, S. (1992) ‘Is the Bundesbank Different from other Central banks? A Study based on P*’, Working Paper, London Business School.Google Scholar
  20. HALLMAN, J. J. and BRYDEN, E. J. (1992) ‘Commodity Prices and P-star’, Economic Review, 28(1), 11–17.Google Scholar
  21. HALLMAN, J. J., PORTER, R. D. and SMALL, D. H. (1989) ‘M2 per unit of potential GNP as an anchor for the price level’, Board of Governors of the Federal Reserve System, Staff Sudy, No. 157.Google Scholar
  22. HALLMAN, J. J., PORTER, R. D. and SMALL, D. H. (1991) ‘Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run’, American Economic Review (Sept.) 841–58.Google Scholar
  23. HANNAH, S. and JAMES, A. (1989) ‘P-Star as a Monetary Indicator for the UK’, National Westminster Capital Markets Report.Google Scholar
  24. HENDERSHOTT, P. H. (1968) ‘The Neutralized Money Stock: An Unbiased Measure of Federal Reserve Policy Actions’, (Homewood, Illinois: Richard Irwin).Google Scholar
  25. HENRY, J. and SICSIC, P. (1992) ‘Stationnarité autour d’une tendance dèterministe ‘coudée’ de la vitesse de circulation de la monnaie’, Internal paper, Bank of France, Direction Générale des Etudes, DEER, SEMEF, June.Google Scholar
  26. HUMPHREY, T. M. (1989) ‘Precursors of the P-Star model’, Economic Review, Federal Bank of Richmond (July–Aug.), pp. 3–9.Google Scholar
  27. JOHANSEN, S. (1988) ‘Statistical Analysis of Cointegrating Vectors’, Journal of Economic Dynamics and Control, 12(2–3), 231–54.CrossRefGoogle Scholar
  28. JOHANSEN, S. (1990) ‘Cointegration in Partial Systems and the Efficiency of Single Equation Analysis’, Journal of Econometrics.Google Scholar
  29. JOHANSEN, S. and JUSELIUS, K. (1990) ‘Maximum Likelihood Estimation and Estimation and Inference on Cointegration — with Applications to the Demand for Money’, Oxford Bulletin of Economics and Statistics, 52(2), 169–210.CrossRefGoogle Scholar
  30. JUSELIUS, K. (1991) ‘CATS in RATS’, Institute of Economics, University of Copenhagen, Working Paper (Mar).Google Scholar
  31. KOLE, L. S. and LEAHY, M. P. (1991) ‘The Usefulness of P* Measures for Japan and Germany’, Board of Governors of the Federal Reserve System. International Finance Discussion Papers, no. 414 (Nov).Google Scholar
  32. KUTTNER, K. N. (1990) ‘Inflation and the Rate of Growth of Money’, Federal Reserve Bank of Chicago, Economic Perspectives (Jan.–Feb.), 2–10.Google Scholar
  33. LAIDLER, D. (1991) ‘The Quantity Theory is Always and Everywhere Controversial — Why?’ The Economic Record (Dec), 289–305.Google Scholar
  34. MEHRA, Y. P. (1989) ‘Cointegration and a Test of the Quantity Theory of Money’, Federal Reserve Bank of Richmond, Working Paper 89–2.Google Scholar
  35. MUSCATELLI, V. A. and HURN, S. (1992) ‘Cointegration and Dynamic Time Series Models’, Journal of Economic Surveys, 6(1), 1–43.CrossRefGoogle Scholar
  36. PECCHENINO, R. A. and RASCHE, R. (1990) ‘P* Type Models: Evaluation and Forecasts’, NBER Working Papers, no. 3406 (Aug).CrossRefGoogle Scholar
  37. RAFFIN, J. (1989) ‘Un nouvel indicateur pour la politique monétaire américaine: P*’, Banque de France, Direction Générale des Etudes, Service des Economies Etrangères, Internal Paper (18 Aug).Google Scholar
  38. SCHMIDT, P. and PHILLIPS, P. C. B. (1990) ‘Testing for a Unit Root in the Presence of a Deterministic Trend’, Cowles Foundation, Discussion Paper no. 933.Google Scholar
  39. STARLEAF, D. S. and STEPHENSON, J. S. (1969) ‘A Suggested Solution to the Monetary Policy Indicator. The Monetary Full Employment Interest Rate’, The Journal of Finance (Sept.), 623–41.Google Scholar

Copyright information

© Philip Arestis 1993

Authors and Affiliations

  • Christian Bordes
  • Eric Girardin
  • Velayoudom Marimoutou

There are no affiliations available

Personalised recommendations