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P-Star Model: A Leading Indicator of Inflation for Pakistan

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Author Info
Qayyum, Abdul
Bilquees, Faiz

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Abstract

The 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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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2058.

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Date of creation: 2005
Date of revision: 2005
Publication status: Published in The Pakistan Development Review 2.44(2005): pp. 117-129
Handle: RePEc:pra:mprapa:2058

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Related research
Keywords: Inflation P-star model Forecasting: Pakistan

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Eduard J. Bomhoff, 1990. "Stability Of Velocity In The Group Of Seven Countries: A Kalman Filter Approach," IMF Working Papers 90/80, International Monetary Fund.
  2. Lawrence J. Christiano, 1989. "P*: not the inflation forecaster's holy grail," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-18. [Downloadable!]
  3. Clemens J. M. Kool & John A. Tatom, 1994. "The P-star model in five small economies," Review, Federal Reserve Bank of St. Louis, issue May, pages 11-29. [Downloadable!]
  4. Kenneth Kuttner, 1992. "Monetary policy with uncertain estimates of potential output," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 2-15.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Qayyum, Abdul, 2006. "Money, Inflation, and Growth in Pakistan," MPRA Paper 2055, University Library of Munich, Germany, revised 2006. [Downloadable!]
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