P* Type Models: Evaluation and Forecasts
40 Pages Posted: 25 Apr 2011 Last revised: 24 Apr 2022
Date Written: August 1990
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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