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P* Type Models: Evaluation and Forecasts

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  • R.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

  • R.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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    1. 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, January.
    2. John B. Carlson, 1989. "The indicator P-star: just what does it indicate?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
    3. 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.).
    4. 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.
    5. 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.
    6. 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.
    7. 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.
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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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