The Domestic and Foreign Price Gaps in the P-STAR Model: Evidence from Spain

Author/Editor:

Alicia García-Herrero ; Manoj Vasant Pradhan

Publication Date:

October 1, 1999

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper uses the P-STAR model to analyze Spanish prices from 1970 to 1996, adding the foreign price gap to the standard domestic definition of the P-STAR model (the domestic price gap) to assess the role German price movements played in Spanish inflation. The domestic price gap turns out to be the major explanatory variable for inflation, even after the entrance of Spain in the exchange rate mechanism (ERM). This result suggests that the successful disinflation experienced in Spain in the past few years may be more related to domestic conditions than to foreign ones.

Series:

Working Paper No. 1998/064

Subject:

Conventional peg Exchange rates Foreign exchange Inflation Output gap Potential output Prices Production

English

Publication Date:

October 1, 1999

ISBN/ISSN:

9781451848533/1018-5941

Stock No:

WPIEA0641998

Pages:

26

Please address any questions about this title to publications@imf.org