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Economic Review

Jul/Aug, 1989

Precursors of the P-Star Model

Thomas M. Humphrey

The Federal Reserve Board's P-Star inflation forecasting model predicts changes in inflation from the gap between actual and equilibrium prices. The model has a distinguished history. Quantity theorists from David Hume to Milton Friedman have long used versions of it to explain how money stock changes determine price level changes with a lag.

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