Working Paper
The P-star approach to the link between money and prices
Abstract: This paper examines several specification errors in the M2-based P* model and develops an M1-based estimate of this model. The apparent statistical significance of M2 is shown to arise from a spurious regression that uses a non-stationary regressor and because the significance test for M2 is biased by including the influence of a lagged dependent variable whose coefficient is not normally distributed. When these problems are addressed, M2 is not statistically significant related to the price level. The M1-based P* model exhibits a significant relationship between M1 and the price level, however.
https://doi.org/10.20955/wp.1990.008
Access Documents
File(s):
File format is application/pdf
https://s3.amazonaws.com/real.stlouisfed.org/wp/1990/1990-008.pdf
Description: Full text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 1990
Number: 1990-008