P* Type Models: Evaluation and Forecasts
R.A. Pecchenino, Robert H. Rasche
NBER Working Paper No. 3406
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.
Published: International Journal of Forecasting. Volume 6, pp. 421-440, 1990.