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The P-star Model in Iran (1960-2005)

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  • Ahmad Tashkini

    (Ph. D. Student, University of Tehran, Deportmant of Economics)

Abstract

This paper studies the usefulness of the P*-model in the analysis of the behaviour of prices in Iranian economy. The P*-model is based on the Quantity of Theory of Money. This model believes that the price level tends to move towards the equilibrium price level. The P* model uses price gap to forecast inflation, if the equilibrium price is greater than the current price, there is a tendency for the price level to rise and vice versa. The equilibrium price in this approach is determined by potential output, the equilibrium velocity of money and the amount of money in the economy. In this study, potential output and equilibrium velocity are derived using the Hodrick and Prescott filter.

Suggested Citation

  • Ahmad Tashkini, 2006. "The P-star Model in Iran (1960-2005)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 11(1), pages 115-122, winter.
    • Handle: RePEc:eut:journl:v:11:y:2006:i:1:p:115
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    References listed on IDEAS

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    1. Nicoletti Altimari, Sergio, 2001. "Does money lead inflation in the euro area?," Working Paper Series 63, European Central Bank.
    2. Linda S. Kole & Michael P. Leahy, 1991. "The usefulness of P* measures for Japan and Germany," International Finance Discussion Papers 414, Board of Governors of the Federal Reserve System (U.S.).
    3. Mr. Richard D Haas & Mr. Robert J. Corker, 1991. "Price Pressure Gaps: An Application of P* Using Korean Data," IMF Working Papers 1991/026, International Monetary Fund.
    4. Joseph Atta-Mensah, 1996. "A Modified P*-Model of Inflation Based on M1," Staff Working Papers 96-15, Bank of Canada.
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