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P*: not the inflation forecaster's holy grail

  • Lawrence J. Christiano

This paper describes and evaluates P-Star (P*), a new method to forecast inflation trends which was introduced by the Federal Reserve Board of Governors in the summer of 1989. The paper examines how well P* would have done, compared with eight other forecasting methods, had all of these methods been used to forecast inflation in the 1970s and 1980s. P* turns out to be not an exceptionally good or bad way to forecast inflation.

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Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1989)
Issue (Month): Fall ()
Pages: 3-18

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Handle: RePEc:fip:fedmqr:y:1989:i:fall:p:3-18:n:v.13no.4
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  1. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
  2. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, vol. 70(5), pages 1005-14, December.
  3. Christopher A. Sims, 1989. "Modeling trends," Discussion Paper / Institute for Empirical Macroeconomics 22, Federal Reserve Bank of Minneapolis.
  4. John R. Walter, 1989. "Monetary aggregates: a user's guide," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 20-28.
  5. 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.).
  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. Lawrence J. Christiano & Martin Eichenbaum, 1989. "Unit roots in real GNP: do we know, and do we care?," Discussion Paper / Institute for Empirical Macroeconomics 18, Federal Reserve Bank of Minneapolis.
  8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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