P-Star Model: A Leading Indicator of Inflation for Pakistan
AbstractThe P-star inflation model is based on the long-term quantity theory of money and puts together the long-term determinants of the price level and the short-run changes in current inflation. The P-star model-based indicator has replaced the previous monetary policy procedures in a number of countries because it offers by far more information and predictive power than monitoring movements in money supply and the rate of monetary growth. In this paper we used the P-star model to calculate the leading indicator of inflation, and also to test the forecasting performance of the P-star model-based leading indicator of inflation. The results of the study show that compared to the simple autoregressive model and the M2 growth augmented model, the P-star model can be used to obtain the leading indicator of inflation in Pakistan because it has additional information about the future rate of inflation. Therefore, this paper provides a useful tool to the policy-makers to assess the future movement of inflation in Pakistan.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2058.
Date of creation: 2005
Date of revision: 2005
Publication status: Published in The Pakistan Development Review 2.44(2005): pp. 117-129
Inflation; P-star model; Forecasting: Pakistan;
Other versions of this item:
- Abdul Qayyum & Faiz Bilquees, 2005. "P-Star Model: A Leading Indicator of Inflation for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(2), pages 117-129.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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