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P* Type Models: Evaluation and Forecasts

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  • Rowena A. Pecchenino
  • Robert H. Rasche

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.

Suggested Citation

  • Rowena A. Pecchenino & Robert H. Rasche, 1990. "P* Type Models: Evaluation and Forecasts," NBER Working Papers 3406, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3406
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    References listed on IDEAS

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    Cited by:

    1. Lillian Kamal, 2014. "Do GAP Models Still have a Role to Play in Forecasting Inflation?," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(3), pages 1-12.
    2. 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.
    3. 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.
    4. Joseph Atta-Mensah, 1996. "A Modified P*-Model of Inflation Based on M1," Staff Working Papers 96-15, Bank of Canada.
    5. 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.
    6. John A. Tatom, 1990. "The link between monetary aggregates and prices," Working Papers 1990-002, Federal Reserve Bank of St. Louis.
    7. Richard G. Anderson & Jeffrey J. Hallman, 1993. "Has the long-run velocity of M2 shifted? Evidence from the P* model," Economic Review, Federal Reserve Bank of Cleveland, vol. 29(Q I), pages 14-26.
    8. Mustafa Kamal Mujeri & Md Shahiduzzaman & Md Ezazul Islam, 2009. "Application of the P?Star Model for Measuring Inflationary Pressure in Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 32(1), pages 1-22.

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