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The Domestic and Foreign Price Gaps in the P-STAR Model: Evidence from Spain

Author

Listed:
  • Ms. Alicia García-Herrero
  • Manoj Vasant Pradhan

Abstract

The paper uses the P-STAR model to analyze Spanish prices from 1970 to 1996, adding the foreign price gap to the standard domestic definition of the P-STAR model (the domestic price gap) to assess the role German price movements played in Spanish inflation. The domestic price gap turns out to be the major explanatory variable for inflation, even after the entrance of Spain in the exchange rate mechanism (ERM). This result suggests that the successful disinflation experienced in Spain in the past few years may be more related to domestic conditions than to foreign ones.

Suggested Citation

  • Ms. Alicia García-Herrero & Manoj Vasant Pradhan, 1999. "The Domestic and Foreign Price Gaps in the P-STAR Model: Evidence from Spain," IMF Working Papers 1998/064, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1998/064
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    Citations

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    Cited by:

    1. Loening, Josef L. & Durevall, Dick & Ayalew Birru, Yohannes, 2009. "Inflation Dynamics and Food Prices in an Agricultural Economy: The Case of Ethiopia," Working Papers in Economics 347, University of Gothenburg, Department of Economics.
    2. Michael Meow-Chung Yap, 2002. "P -Star, Exchange Rate Regime and Inflation Determination: The Malaysian case," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 7(3), pages 379-407.
    3. Durevall, Dick & Loening, Josef L. & Ayalew Birru, Yohannes, 2013. "Inflation dynamics and food prices in Ethiopia," Journal of Development Economics, Elsevier, vol. 104(C), pages 89-106.
    4. Melecky, Martin, 2008. "An alternative framework for foreign exchange risk management of sovereign debt," Policy Research Working Paper Series 4458, The World Bank.
    5. Steven Morling, 2002. "Output Adjustment in Developing Countries: a Structural Var Approach," Discussion Papers Series 307, School of Economics, University of Queensland, Australia.
    6. Daniel G. Garcés Díaz, 2003. "Agregados monetarios, inflación y actividad económica en México," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 18(1), pages 37-78.

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