Pecchenino, Rowena A. and Rasche, Robert H.
(1990)
P∗ type models: Evaluation and forecasts.
International Journal of Forecasting, 6 (3).
pp. 421-440.
ISSN 0169-2070
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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