P*: Not the Inflation Forecaster's Holy Grail

Abstract

This paper describes and evaluates _P-Star (P*)_, a new method to forecast inflation trends which was introduced by the Federal Reserve Board of Governors in the summer of 1989. The paper examines how well _P*_ would have done, compared with eight other forecasting methods, had all of these methods been used to forecast inflation in the 1970s and 1980s. _P*_ turns out to be not an exceptionally good or bad way to forecast inflation.

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