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An augmented P-Star model of US inflation

Author

Listed:
  • Imad Moosa

    (RMIT)

  • Basil Al-Nakeeb

    (Parasitic Economics)

Abstract

An augmented P-Star model is specified, estimated and tested to explain the phenomenon of subdued inflation in the US. While the model is estimated for both total and core CPI, the results show that it works better if the general price level is proxied by total CPI. Based on the empirical results, subdued inflation is attributed to declining velocity of circulation and the accumulation of reserves by banks. Another contributing factor is declining import prices as a result of global competition. Therefore, both monetary and real factors have roles to play in the generation of US inflation.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:eurase:v:10:y:2020:i:4:d:10.1007_s40822-020-00152-3
    DOI: 10.1007/s40822-020-00152-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; P-Star model; Velocity of circulation; Structural time series model;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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