P* Revisited: Money-Based Inflation Forecasts with a Changing Equilibrium Velocity
| Autor: | Athanasios Orphanides, Richard D. Porter |
|---|---|
| Rok vydání: | 1998 |
| Předmět: |
Inflation
Economics and Econometrics media_common.quotation_subject General Business Management and Accounting Regression Econometric model Quantity theory of money Value (economics) Econometrics Economics Econometric models Forecasting Representation (mathematics) Constant (mathematics) media_common |
| Zdroj: | Finance and Economics Discussion Series. 1998:1-23 |
| ISSN: | 1936-2854 |
| DOI: | 10.17016/feds.1998.26 |
| Popis: | This paper implements recursive techniques to estimate the equilibrium level of M2 velocity and to forecast inflation using the P* model. The recursive estimates of equilibrium velocity are obtained by applying regression trees and least squares methods to a standard representation of M2 demand, namely a model in which the velocity of M2 depends on the opportunity cost of holding M2 instruments. Equilibrium velocity is defined as the level of velocity that would be expected to obtain if deposit rates were at their long-run average (equilibrium) value. We simulate the alternative models to obtain real-time forecasts of inflation and evaluate the performance of the forecasts obtained from the alternative models. We find that while a $P^*$ model assuming a constant equilibrium velocity does not provide accurate inflation forecasts in the 1990s, a model based on our time-varying equilibrium velocity estimates does quite well. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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