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P* type models: Evaluation and forecasts

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  • Pecchenino, R. A.
  • Rasche, Robert H.

Abstract

This paper critically evaluates the Federal Reserve's p* model of inflation, and develops a model of national income determination implicit in the p* formulation. We use this model to forecast the future paths of key macroeconomic variables and investigate its behavior under a variety of deterministic monetary policy rules. These forecasts and policy simulations suggest a dynamic economic behavior inconsistent with stylized facts, and lead us to question the underlying structure of the p* formulation.
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Suggested Citation

  • Pecchenino, R. A. & Rasche, Robert H., 1990. "P* type models: Evaluation and forecasts," International Journal of Forecasting, Elsevier, vol. 6(3), pages 421-440, October.
  • Handle: RePEc:eee:intfor:v:6:y:1990:i:3:p:421-440
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    2. Braun, Steven N, 1990. "Estimation of Current-Quarter Gross National Product by Pooling Preliminary Labor-Market Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 293-304, July.
    3. Gould, John P & Nelson, Charles R, 1974. "The Stochastic Structure of the Velocity of Money," American Economic Review, American Economic Association, vol. 64(3), pages 405-418, June.
    4. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
    5. John B. Carlson, 1989. "The indicator P-star: just what does it indicate?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
    6. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    7. Jeffrey J. Hallman & Richard D. Porter & David H. Small, 1989. "M2 per unit of potential GNP as an anchor for the price level," Staff Studies 157, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Atta-Mensah, J, 1996. "A Modified P*-Model of Inflation Based on M1," Staff Working Papers 96-15, Bank of Canada.
    2. John A. Tatom, 1990. "The P-star approach to the link between money and prices," Working Papers 1990-008, Federal Reserve Bank of St. Louis.
    3. John A. Tatom, 1990. "The link between monetary aggregates and prices," Working Papers 1990-002, Federal Reserve Bank of St. Louis.
    4. Jeffrey J. Hallman & Richard G. Anderson, 1993. "Has the long-run velocity of M2 shifted? Evidence from the P* model," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 14-26.
    5. Martin Feldstein & James H. Stock, 1994. "The Use of a Monetary Aggregate to Target Nominal GDP," NBER Chapters,in: Monetary Policy, pages 7-69 National Bureau of Economic Research, Inc.
    6. Karl-Heinz Tödter & Hans-Eggert Reimers, 1994. "P-Star as a link between money and prices in Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(2), pages 273-289, June.

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